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Why is Price useless to signal Environmental Quality ?

Author

Listed:
  • Alexandre Volle

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

Abstract

The present paper investigates the pricing behavior of a green firm competing against a brown firm where the polluting good is sold in a perfect competitive market. The distorsion of the price to signal a green product is too great to face any demand. Pooling price equilibria emerge as the most plausible situations as long as the brown firm has the possibility to mimic the pricing behavior of the green firm. A green producer is thus constrained to practice uninformative prices which can conduct to the lemon outcome (Akerlof 1970)

Suggested Citation

  • Alexandre Volle, 2018. "Why is Price useless to signal Environmental Quality ?," Post-Print hal-02101118, HAL.
    • Handle: RePEc:hal:journl:hal-02101118
    as

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