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Environmental Labeling and Incomplete Consumer Information in Laboratory Markets

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Author Info

  • Cason, T.N.
  • Gangadharan, L.

Abstract

Survey evidence suggests that consumers care about the environment and are willing to pay a higher price for a product that generates less environmental harm. We induce buyer preferences over quality in a laboratory posted offer market to study sellers' incentives to offer products of differing quality. Buyers are unaware of the product quality before purchase, as is the case for experience goods. We first document the market failure that arises from incomplete information when no signaling or reputations are possible. We then study various treatments that could remedy this failure. Seller reputations and unverified "cheap talk" signals sometimes increase the number of higher-valued 'clean' goods. The only reliable way to improve product quality in the experiment, however, is to use an external body that charges a fee to verify product quality claims.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 708.

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Length: 37 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:mlb:wpaper:708

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Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
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Web page: http://www.economics.unimelb.edu.au
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Keywords: MORAL HAZARD ; EXPERIMENTS ; ENVIRONMENT;

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  1. Miller, Ross M. & Plott, Charles R., . "Product Quality Signaling in Experimental Markets," Working Papers 447, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  3. Steven A. Matthews & M. Okuno-Fujiwara & Andrew Postlewaite, 1990. "Refining Cheap-Talk Equilibria," Discussion Papers 892R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Boulding, William & Kirmani, Amna, 1993. " A Consumer-Side Experimental Examination of Signaling Theory: Do Consumers Perceive Warranties as Signals of Quality?," Journal of Consumer Research, University of Chicago Press, vol. 20(1), pages 111-23, June.
  5. Brozovsky, J. A. & Richardson, F. M., 1998. "The effects of information availability on the benefits accrued from enhancing audit-firm reputation," Accounting, Organizations and Society, Elsevier, vol. 23(8), pages 767-779, November.
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