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Is Ecolabelling a Reliable Environmental Policy Measure?

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Author Info

  • 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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References

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  1. Abel, Andrew B., 1952-, 1995. "Options, the value of capital, and investment," Working papers 3843-95., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  3. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
  4. 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.
  5. 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.
  6. Mattoo, Aaditya & Singh, Harsha V, 1994. "Eco-labelling: Policy Considerations," Kyklos, Wiley Blackwell, vol. 47(1), pages 53-65.
  7. 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.
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