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Is Ecolabelling a Reliable Environmental Policy Measure?

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  • Cesare Dosi

    (University of Padova and Fondazione Eni Enrico Mattei)

  • Michele Moretto

    (University of Padova and Fondazione Eni Enrico Mattei)

Abstract

Ecolabel award schemes have become increasingly popular. Their rationale is to enable (concerned) consumers to identify "green" products. By so doing, ecolabelling should stimulate environmental innovation, and induce firms to reduce the supply of conventional (polluting) products. Our analysis however points out that the two phenomena are not necessarily correlated. Through a dynamic model of investment decisions, the paper outlines the situations under which ecolabelling could induce perverse effects (increased investment in conventional technologies) and examines whether setting quantitative restrictions on the issuing of labels could constitute an antidote.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.9.

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Date of creation: Jan 1999
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Handle: RePEc:fem:femwpa:1999.9

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Keywords: Ecolabel; Green Products; Environmental Policy; Environmental Innovation;

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  1. Kuhn, Michael, 1999. "Green Lemons - Environmental Labels and Entry into an Environmentally Differentiated Market under Asymmetric Information," Thuenen-Series of Applied Economic Theory 20, University of Rostock, Institute of Economics.
  2. Andrew B. Abel & Avinash Dixit & Janice C. Eberly & Robert S. Pindyck, 1996. "Options, the Value of Capital, and Investment," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 753-77, August.
  3. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
  4. He, Hua & Pindyck, Robert S., 1992. "Investments in flexible production capacity," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 575-599.
  5. Mattoo, Aaditya & Singh, Harsha V, 1994. "Eco-labelling: Policy Considerations," Kyklos, Wiley Blackwell, vol. 47(1), pages 53-65.
  6. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  7. Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
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