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Efficiency properties of binary ecolabeling


  • Konishi, Yoshifumi


We investigate efficiency properties of binary ecolabels in a homogeneous good market with heterogeneous consumers. Faced with the minimum technology standard, firms make endogenous entry, certification, and price/quantity decisions. We consider both perfect and imperfect competition with or without sunk fixed costs. Our findings are as follows. Ecolabeling alone does not achieve the first-best outcome and, to achieve the second best, may need to set the standard less strict than the efficient level. Without sunk fixed costs, ecolabeling can achieve the first-best outcome provided that both the technology standard and the complementary pollution tax are set at efficient levels. With sunk fixed costs, however, differential excise taxes that would restore allocative efficiency induce more entry than optimal, and thus, can be even welfare decreasing relative to no tax outcome. Tightening the technology standard may ameliorate such an adverse effect of the corrective tax system by reducing excessive entry and pollution per output by the certified firms.

Suggested Citation

  • Konishi, Yoshifumi, 2011. "Efficiency properties of binary ecolabeling," Resource and Energy Economics, Elsevier, vol. 33(4), pages 798-819.
  • Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:798-819
    DOI: 10.1016/j.reseneeco.2011.06.002

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    Cited by:

    1. Shizuka Nishikawa, 2015. "Regulating Cournot Oligopoly with Environmental Externalities," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 449-462, December.

    More about this item


    Ecolabeling; Environmental standard; Discrete product choice; Product differentiation;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation


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