Eco-Labeling Consequences in General Equilibrium: A Graphical Assessment
International environmental groups propose to implement new standards of forest management through programs that certify producers who meet criteria to enhance biodiversity or sustainability. These producers could earn an "eco-label" that identifies their products for consumers. We consider whether a market economy might generate feedbacks that produce undesirable side effects as consumers respond to price changes. While the general case is ambiguous, the theoretical framework shows the potential that certification may lead to a reallocation of land toward less ecologically sustainable uses, with the possibility of sufficient impact to diminish global biodiversity or sustainability of forest products
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