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Credence Goods, Efficient Labelling Policies, and Regulatory Enforcement

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  • Soham Baksi

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  • Pinaki Bose

Abstract

We analyse the optimality of information revelation of hidden attributes of “credence goods” via alternative labelling procedures. When consumers are heterogeneous in their willingness to pay for the hidden attribute, producers can either self-label their products, or have them certified by a third party. The government can impose self or third party labelling requirements on either the “green” or the “brown” producers. Our benchmark model develops a condition that links the optimal imposition of third party labelling to the relative market share of each type of the good under complete information. We extend our analysis to incorporate asymmetric information and cheating by the producers. When corrupt producers can affix spurious labels, the government needs to supplement the labelling policy with costly monitoring activities. We find that mandatory self-labelling schemes generally dominate mandatory third party labelling, unless the “market share effect” greatly exceeds the “incentive-to-cheat effect”. Copyright Springer Science+Business Media, Inc. 2007

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Bibliographic Info

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

Volume (Year): 37 (2007)
Issue (Month): 2 (June)
Pages: 411-430

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Handle: RePEc:kap:enreec:v:37:y:2007:i:2:p:411-430

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

Related research

Keywords: corruption; credence goods; eco-labelling; monitoring; self-labelling; third party labelling; Q58; L15; D82;

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References

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Citations

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Cited by:
  1. Yuki Yamamoto & Kenji Takeuchi & Takayoshi Shinkuma, 2012. "Are There Price Premiums for Certified Wood?Empirical Evidence from Log Auction Data in Japan," Discussion Papers 1209, Graduate School of Economics, Kobe University.
  2. Arguedas, Carmen & Blanco, Esther, 2014. "On Fraud and Certification of Corporate Social Responsibility," Working Papers in Economic Theory 2014/02, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  3. Bonroy, O. & Constantatos, C., 2013. "On the economics of labels : a review of the theoretical literature," Working Papers 2013-01, Grenoble Applied Economics Laboratory (GAEL).
  4. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2011. "Certification of Corporate Social Responsibility Activities in Oligopolistic Markets," Working Papers 1103, University of Crete, Department of Economics.
  5. Etilé, Fabrice & Teyssier, Sabrina, 2013. "Corporate social responsibility and the economics of consumer social responsibility," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 2013(02), pages 221-259, June.
  6. Schumacher, Ingmar, 2010. "Ecolabeling, consumers' preferences and taxation," Ecological Economics, Elsevier, vol. 69(11), pages 2202-2212, September.
  7. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, vol. 101(2), pages 526-55, April.
  8. Valentina De Marchi, 2010. "Cooperation Toward Environmental Innovation: an Empirical Investigation," "Marco Fanno" Working Papers 0119, Dipartimento di Scienze Economiche "Marco Fanno".
  9. Cohen, Mark A. & Vandenbergh, Michael P., 2012. "The potential role of carbon labeling in a green economy," Energy Economics, Elsevier, vol. 34(S1), pages S53-S63.
  10. Arminda Finisterra do Paço & Mário Raposo, 2008. "Determining the characteristics to profile the “green” consumer: an exploratory approach," International Review on Public and Nonprofit Marketing, Springer, vol. 5(2), pages 129-140, December.
  11. Charles Mason, 2011. "Eco-Labeling and Market Equilibria with Noisy Certification Tests," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(4), pages 537-560, April.
  12. Gaëlle Balineau & Ivan Dufeu, 2010. "Are Fair Trade Goods Credence Goods? A New Proposal, with French Illustrations," Journal of Business Ethics, Springer, vol. 92(2), pages 331-345, April.
  13. Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Private CSR Activities in Oligopolistic Markets: Is there any room for Regulation?," Working Papers 0816, University of Crete, Department of Economics.

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