Performance or Marketing Benefits? The Case of LEED Certification

Green building adoption is driven by both performance-based benefits and marketing based benefits. Performance based benefits are those that improve performance or lower operating costs of the building or of building users. Marketing benefits stem from the consumer response to green certification. This study illustrates the relative importance of the marketing based benefits that accrue to Leadership in Energy and Environmental Design (LEED) buildings due to green signaling mechanisms, specifically related to the certification itself are identified. Of course, all participants in the LEED certification scheme seek marketing benefits. But even among LEED participants, the interest in green signaling is pronounced. The green signaling mechanism that occurs at the certification thresholds shifts building patterns from just below to just above the threshold level, and motivates builders to cluster buildings just above each threshold. Results are consistent across subsamples, though nonprofit organizations appear to build greener buildings and engage in more green signaling than for-profit entities. Using nonparametric regression discontinuity, signaling across different building types is observed. Marketing benefits due to LEED certification drives organizations to build greener buildings by upgrading buildings at the thresholds to reach certification levels.