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Can Ecolabeling Schemes Preserve the Environment?

Author

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  • Lisette Ibanez

    ()

  • Gilles Grolleau

    ()

Abstract

A three-stage game of production technology, signal and price competition is developed to study the impact of eco-labeling, in a duopoly model of vertical product differentiation. The production technology and the subsequent pollution level are non-observable by consumers. The only way to inform consumers about the environmental quality of the product is to stick an ecolabel on it. However, a polluting firm may also usurp the ecolabel by incurring a certain cost. By assuming that consumers are altruistic and willing to pay for environmental quality, we show that ecolabels can reduce the pollution level. Finally and importantly, under restrictive conditions on labeling cost, ecolabeling can constitute to some extent an environmentally effective and economically efficient policy. However, ecolabeling cannot alone internalize the whole negative externality until the optimum point.
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Suggested Citation

  • Lisette Ibanez & Gilles Grolleau, 2008. "Can Ecolabeling Schemes Preserve the Environment?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 233-249, June.
  • Handle: RePEc:kap:enreec:v:40:y:2008:i:2:p:233-249
    DOI: 10.1007/s10640-007-9150-3
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    References listed on IDEAS

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    1. Kotchen, Matthew J., 2005. "Impure public goods and the comparative statics of environmentally friendly consumption," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 281-300, March.
    2. Amacher, Gregory S. & Koskela, Erkki & Ollikainen, Markku, 2004. "Environmental quality competition and eco-labeling," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 284-306, March.
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    5. Douadia Bougherara & Gilles Grolleau & Luc Thiébaut, 2005. "Can Labelling Policies Do More Harm Than Good? An Analysis Applied to Environmental Labelling Schemes," European Journal of Law and Economics, Springer, vol. 19(1), pages 5-16, January.
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    More about this item

    Keywords

    Altruism; Eco-labels; Duopoly; Environmental policy; D11; D21; L15;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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