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Eco-labels, Trade and Protectionism

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  • Mads Greaker

Abstract

Eco-labels are suspected to serve protectionist purposes. We analyze the choice between an environmental standard and a voluntary eco-label scheme in a partial trade model with one domestic firm and one foreign firm. The environmental standard will only apply to the domestic firm, while both firms can adopt the eco-label. Pollution is production related, and domestic consumers demand products that are produced in an “environmentally friendly” way. Our results show that it may be optimal for the domestic government to introduce an eco-label and get both firms to adopt the label, instead of setting an environmental standard. However, to what extent this policy serves protectionist purposes is ambiguous. In particular, if the willingness to pay for green products is sufficient to cover the pollution abatement costs of the foreign firm, foreign firm profit will increase while domestic firm profit will decrease compared to the outcome with a domestic environmental standard. On the other hand, if the willingness to pay for green products is insufficient, the foreign firm would be better off with a domestic environmental standard. Copyright Springer 2006

Suggested Citation

  • Mads Greaker, 2006. "Eco-labels, Trade and Protectionism," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(1), pages 1-37, January.
    • Handle: RePEc:kap:enreec:v:33:y:2006:i:1:p:1-37
    DOI: 10.1007/s10640-005-0070-9
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    Cited by:

    1. H. Eggert & M. Greaker, 2011. "Trade, GMOs and Environmental Risk: Are Current Policies Likely to Improve Welfare?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(4), pages 587-608, April.
    2. van't Veld, Klaas & Kotchen, Matthew J., 2011. "Green clubs," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 309-322.
    3. Dayi He & Ximing Deng, 2020. "Price Competition and Product Differentiation Based on the Subjective and Social Effect of Consumers’ Environmental Awareness," IJERPH, MDPI, vol. 17(3), pages 1-16, January.
    4. Jamalpuria, Aditi, 2012. "On voluntary eco-labeling and fiscal incentives," Economics Letters, Elsevier, vol. 117(1), pages 110-114.
    5. Conrad Klaus, 2009. "Engines Powered by Renewable Energy, the Network of Filling Stations and Compatibility Decisions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(4), pages 362-381, August.
    6. Gilles Grolleau & Lisette Ibanez & Naoufel Mzoughi, 2007. "Industrialists hand in hand with environmentalists: how eco-labeling schemes can help firms to raise rivals’ costs," European Journal of Law and Economics, Springer, vol. 24(3), pages 215-236, December.
    7. Brusselaers, Jan & Buysse, Jeroen, 2021. "Legality requirements for wood import in the EU: Who wins, who loses?," Forest Policy and Economics, Elsevier, vol. 123(C).
    8. Réquillart, Vincent & Soler, Louis-Georges & Zang, Yu, 2016. "Quality standards versus nutritional taxes: Health and welfare impacts with strategic firms," Journal of Health Economics, Elsevier, vol. 50(C), pages 268-285.
    9. Carolyn Fischer & Mads Greaker & Knut Einar Rosendahl, 2014. "Robust Policies against Emission Leakage: The Case for Upstream Subsidies," CESifo Working Paper Series 4742, CESifo.
    10. Monteiro, Jose-Antonio, 2010. "Eco-label Adoption in an Interdependent World," MPRA Paper 20268, University Library of Munich, Germany.
    11. Soham Baksi & Pinaki Bose, 2007. "Credence Goods, Efficient Labelling Policies, and Regulatory Enforcement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(2), pages 411-430, June.
    12. Gerhard Clemenz, 2010. "Eco-Labeling and Horizontal Product Differentiation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 45(4), pages 481-497, April.
    13. Kurtyka, Oliwia & Mahenc, Philippe, 2011. "The switching effect of environmental taxation within Bertrand differentiated duopoly," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 267-277, September.
    14. Brusselaers, Jan & Buysse, Jeroen, 2018. "Implementation of the EU-Cameroon Voluntary Partnership Agreement policy: Trade distortion, rent-seeking and anticipative behavior," Forest Policy and Economics, Elsevier, vol. 90(C), pages 167-179.
    15. Klaus CONRAD, 2005. "Price Competition and Product Differentiation when Goods have Network Effects," Industrial Organization 0502002, University Library of Munich, Germany.
    16. Hend Ghazzai & R Lahmandi-Ayed, 2018. "Ecolabels: Is More Information Better?," Working Papers hal-01877934, HAL.
    17. Mads Greaker & Yuyu Chen, 2006. "Can voluntary product-labeling replace trade bans in the case of GMOs?," Discussion Papers 485, Statistics Norway, Research Department.
    18. Li, Yuanhao & van 't Veld, Klaas, 2015. "Green, greener, greenest: Eco-label gradation and competition," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 164-176.
    19. Prosperi, Maurizio & Viscecchia, Rosaria, 2007. "Indirect Effects of Eco-labelling of agricultural products on Natural Resources," 105th Seminar, March 8-10, 2007, Bologna, Italy 7868, European Association of Agricultural Economists.
    20. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2012. "An Excessive Development of Green Products," Working Papers 2012-5, School of Economic Sciences, Washington State University.
    21. Li, Yi, 2020. "Competing eco-labels and product market competition," Resource and Energy Economics, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    eco-labels; product differentiation; trade policy; H2; H7; Q2; Q28;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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