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Ecological Labelling in North-South Trade

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  • Wilhelm Althammer
  • Susanne Dröge

Abstract

We investigate in a horizontal product differentiation model with North-South trade the implications of a home bias in consumers' demand for labelled goods. We compare mutual recognition and international harmonisation of ecological labels with respect to firms' profits and welfare. Northern consumers perceive a warm glow from buying green, but have information problems with imported labelled products. Firms differ in labelling costs which could help a Southern firm to compensate for the home bias under mutual recognition. Under harmonisation the home bias disappears. Welfare analysis of harmonised labelling shows that a Southern firm gains from adopting a harmonised label - even if there is "eco-imperialism". Given the specific trade structure in our model, harmonisation is a beneficial regime except for the case that labelling costs reach a specific treshold.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44514.de/dp604.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 604.

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Length: 32 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp604

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Keywords: Ecological Labels; Product Differentiation; North-South Trade; WTO Rules;

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  1. 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.
  2. Tothova Monika & Oehmke James F., 2004. "Genetically Modified Food Standards as Trade Barriers: Harmonization, Compromise, and Sub-Global Agreements," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(2), pages 1-19, May.
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