AbstractThe role of labeling is to solve the adverse selection problem caused by unsubstantiated claims from firms. The problem however is likely to remain unsolved if the labeling agency is not trustworthy. The agency can be suspected to divert the fees charged for labeling from their primary purpose of collecting information in order to raise excessive revenue. This paper addresses this issue and shows that labeling may be wasteful if the agency is likely to be untrustworthy. To award firms green labels, the agency may charge fees that exceed the Ramsey level at which the revenue needed for collecting information is raised with a minimal loss in terms of efficiency.
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Bibliographic InfoPaper provided by University of Toulouse 1 Capitole in its series Open Access publications from University of Toulouse 1 Capitole with number http://neeo.univ-tlse1.fr/2655/.
Date of creation: Dec 2009
Date of revision:
Publication status: Published in Journal of Agricultural and Food Industrial Organization (2009-12) v.7, p.1-20
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Other versions of this item:
- Mahenc Philippe, 2009. "Wasteful Labeling," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 7(2), pages 1-20, December.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
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