The spark for Goldman and Nalebuff’s partnership came during a discussion Goldman had with Nalebuff about the lack of unsweetened, healthy beverages in an American market dominated by sweetened products. This discussion ultimately shaped the vision for the company they would start together - a beverage company that supplied tea made with all natural, organic ingredients and operated around the principles of social responsibility and environmental sustainability. The company was called Honest Tea. In the span of a decade, Honest Tea has grown from a one-man business operating out of Seth Goldman’s kitchen to an enterprise boasting 52 employees and annual sales of $23 million in the space of a decade.

Like many emerging brands catering to environmentally-conscious consumers, Honest Tea has established itself in a market dominated by conglomerates using a unique, differentiated product and marketing
scheme. Honest Tea products are either low in sugar or sugar-free. Beverages are made from organic ingredients, free from antibiotics, pesticides, and bioengineering. Honest Tea purchases produce from suppliers that engage in fair trade practices and show “respect for individual workers and their families.” Goldman and Nalebuff created Honest Tea to cater to ‘active and engaged’ consumers who seek an alter-native to unhealthy beverages. The company presents a corporate philosophy distinct from competitors, some of whom have developed reputations for ethically dubious
and environmentally unsustainable business practices.

Economists often employ the terms ‘negative externality’, ‘free-rider’ and ‘public good’ when describing consumers who choose to support ‘honest’ or ‘green’ companies like Honest Tea. Such consumers recognize that during the production process, firms often inflict costs on workers or the environment that are not borne by the producer or consumer. Economists characterize the insufficient quantities of public goods that arise from such behavior as market failures, and the costs borne by workers or society as ‘negative externalities’.

Most are free-riders, in that they refuse to correct for negative externalities generated in the production process. However, a small but growing consumer base is reversing this trend by paying a premium
for products from firms that correct for the negative externalities by providing ‘fair’ wages and committing to environmentally sustainable production.
Consumers are becoming more open to voluntarily contributing to maintaining the quality of the environment and supporting responsible business practices.