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Informative advertising by an environmental group

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  • Heijnen, P.

    ()
    (Universiteit van Amsterdam)

Abstract

Consuming a product does not (necessarily) reveal the environmental damage of the good. In terms of environmental damage, most goods are credence goods. Therefore, through advertising and pricing the firm will not be able to transmit this information to the consumers. I examine the scope for an environmental group (EG) to signal this information to consumers via advertising and campaigning. Both the short-run (where environmental damage is given but unknown to the consumers) and the long-run (where environmental damage is chosen by the firm, but not observed by the consumers) are considered. In the short-run, Pareto-improving advertising is impossible and social welfare improving advertising is only possible if the difference between a clean product and a dirty product is sufficiently large. However, in the long-run, the presence of an EG seems to have a positive effect on social welfare. This is achieved solely by the threat of the EG to advertise if environmental damage is too high.

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 07-02.

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Date of creation: 2007
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Handle: RePEc:ams:ndfwpp:07-02

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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  1. José Moraga-González & Noemi Padrón-Fumero, 2002. "Environmental Policy in a Green Market," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 419-447, July.
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  5. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  6. Pim Heijnen & Lambert Schoonbeek, 2008. "Environmental groups in monopolistic markets," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(4), pages 379-396, April.
  7. Timothy J. Feddersen & Thomas W. Gilligan, 2001. "Saints and Markets: Activists and the Supply of Credence Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(1), pages 149-171, 03.
  8. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  9. 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.
  10. Emons, Winand, 1997. "Credence Goods Monopolists," Berkeley Olin Program in Law & Economics, Working Paper Series qt9c5508x4, Berkeley Olin Program in Law & Economics.
  11. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
  12. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  13. Cremer, Helmuth & Thisse, Jacques-Francois, 1999. "On the taxation of polluting products in a differentiated industry," European Economic Review, Elsevier, vol. 43(3), pages 575-594, March.
  14. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  15. Mahenc, Philippe, 2008. "Signaling the environmental performance of polluting products to green consumers," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 59-68, January.
  16. David P. Baron, 2003. "Private Politics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(1), pages 31-66, 03.
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Cited by:
  1. Pim Heijnen & Lambert Schoonbeek, 2008. "Environmental groups in monopolistic markets," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(4), pages 379-396, April.
  2. Allard Made & Lambert Schoonbeek, 2009. "Entry Facilitation by Environmental Groups," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(4), pages 457-472, August.

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