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Eco-labels, Trade and Protectionism

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  • Mads Greaker

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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

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File URL: http://hdl.handle.net/10.1007/s10640-005-0070-9
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 33 (2006)
Issue (Month): 1 (01)
Pages: 1-37

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Handle: RePEc:kap:enreec:v:33:y:2006:i:1:p:1-37

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: eco-labels; product differentiation; trade policy; H2; H7; Q2; Q28;

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References

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  1. Bjorner, Thomas Bue & Hansen, L.G.Lars Garn & Russell, Clifford S., 2004. "Environmental labeling and consumers' choice--an empirical analysis of the effect of the Nordic Swan," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 411-434, May.
  2. Teisl, Mario F. & Roe, Brian & Hicks, Robert L., 2002. "Can Eco-Labels Tune a Market? Evidence from Dolphin-Safe Labeling," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 339-359, May.
  3. Mari Rege, 2000. "Strategic Policy and Environmental Quality: Helping the Domestic Industry to Provide Credible Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(3), pages 279-296, March.
  4. Ronald Fischer & Pablo Serra, 1998. "Standards and Protection," Documentos de Trabajo 45, Centro de Economía Aplicada, Universidad de Chile.
  5. Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," CORE Discussion Papers 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Bansal, Sangeeta & Gangopadhyay, Shubhashis, 2003. "Tax/subsidy policies in the presence of environmentally aware consumers," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 333-355, March.
  7. Rauscher, Michael, 1997. "International Trade, Factor Movements, and the Environment," OUP Catalogue, Oxford University Press, number 9780198290506.
  8. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
  9. B. Howarth, Richard & Haddad, Brent M. & Paton, Bruce, 2000. "The economics of energy efficiency: insights from voluntary participation programs," Energy Policy, Elsevier, vol. 28(6-7), pages 477-486, June.
  10. Amacher, Gregory S. & Koskela, Erkki & Ollikainen, Markku, 2004. "Environmental quality competition and eco-labeling," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 284-306, March.
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Citations

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Cited by:
  1. Monteiro, Jose-Antonio, 2010. "Eco-label Adoption in an Interdependent World," MPRA Paper 20268, University Library of Munich, Germany.
  2. 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.
  3. Conrad, Klaus, 2004. "Network effects, Compatibility and the Environment : The Case of Hydrogen Powered Cars," Discussion Papers 613, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
  4. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2012. "An Excessive Development of Green Products," Working Papers 2012-5, School of Economic Sciences, Washington State University.
  5. Soham Baksi & Pinaki Bose, 2007. "Credence Goods, Efficient Labelling Policies, and Regulatory Enforcement," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(2), pages 411-430, June.
  6. 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.
  7. Klaus Conrad, 2009. "Engines Powered by Renewable Energy, the Network of Filling Stations and Compatibility Decisions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(4), pages 362-381, August.
  8. Mads Greaker & Yuyu Chen, 2006. "Can voluntary product-labeling replace trade bans in the case of GMOs?," Discussion Papers 485, Research Department of Statistics Norway.
  9. H. Eggert & M. Greaker, 2011. "Trade, GMOs and Environmental Risk: Are Current Policies Likely to Improve Welfare?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(4), pages 587-608, April.
  10. Martin Richardson & Frank Staehler, 2007. "Fair Trade," Working Papers 0709, University of Otago, Department of Economics, revised Jul 2007.
  11. Jamalpuria, Aditi, 2012. "On voluntary eco-labeling and fiscal incentives," Economics Letters, Elsevier, vol. 117(1), pages 110-114.
  12. Gerhard Clemenz, 2010. "Eco-Labeling and Horizontal Product Differentiation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(4), pages 481-497, April.
  13. Klaus CONRAD, 2005. "Price Competition and Product Differentiation when Goods have Network Effects," Industrial Organization 0502002, EconWPA.
  14. Klaus Conrad, 2006. "Price Competition and Product Differentiation when Goods have Network Effects," German Economic Review, Verein für Socialpolitik, vol. 7, pages 339-361, 08.
  15. Conrad, Klaus, 2004. "Price Competition and Product Differentiation when Goods have Network Effects," Discussion Papers 612, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
  16. 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.

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