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Ecological Labelling in North-South Trade

Author

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  • Wilhelm Althammer
  • Susanne Dröge

Abstract

We investigate in a horizontal product differentiation model with North-South trade the implications of a home bias in consumers' demand for labelled goods. We compare mutual recognition and international harmonisation of ecological labels with respect to firms' profits and welfare. Northern consumers perceive a warm glow from buying green, but have information problems with imported labelled products. Firms differ in labelling costs which could help a Southern firm to compensate for the home bias under mutual recognition. Under harmonisation the home bias disappears. Welfare analysis of harmonised labelling shows that a Southern firm gains from adopting a harmonised label - even if there is "eco-imperialism". Given the specific trade structure in our model, harmonisation is a beneficial regime except for the case that labelling costs reach a specific treshold.

Suggested Citation

  • Wilhelm Althammer & Susanne Dröge, 2006. "Ecological Labelling in North-South Trade," Discussion Papers of DIW Berlin 604, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp604
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44514.de/dp604.pdf
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    References listed on IDEAS

    as
    1. Teisl, Mario F. & Roe, Brian & Hicks, Robert L., 2002. "Can Eco-Labels Tune a Market? Evidence from Dolphin-Safe Labeling," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 339-359, May.
    2. Tothova Monika & Oehmke James F., 2004. "Genetically Modified Food Standards as Trade Barriers: Harmonization, Compromise, and Sub-Global Agreements," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(2), pages 1-19, May.
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    More about this item

    Keywords

    Ecological Labels; Product Differentiation; North-South Trade; WTO Rules;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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