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Is Ecolabelling a Reliable Environmental Policy Measure?

  • Cesare Dosi

    (University of Padova and Fondazione Eni Enrico Mattei)

  • Michele Moretto

    (University of Padova and Fondazione Eni Enrico Mattei)

Ecolabel award schemes have become increasingly popular. Their rationale is to enable (concerned) consumers to identify "green" products. By so doing, ecolabelling should stimulate environmental innovation, and induce firms to reduce the supply of conventional (polluting) products. Our analysis however points out that the two phenomena are not necessarily correlated. Through a dynamic model of investment decisions, the paper outlines the situations under which ecolabelling could induce perverse effects (increased investment in conventional technologies) and examines whether setting quantitative restrictions on the issuing of labels could constitute an antidote.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.9.

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Date of creation: Jan 1999
Date of revision:
Handle: RePEc:fem:femwpa:1999.9
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  1. Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, . "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
  2. Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
  3. Kuhn, Michael, 1999. "Green Lemons - Environmental Labels and Entry into an Environmentally Differentiated Market under Asymmetric Information," Thuenen-Series of Applied Economic Theory 20, University of Rostock, Institute of Economics.
  4. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
  5. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  6. He, Hua. & Pindyck, Robert S., 1989. "Investments in flexible production capacity," Working papers 2102-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Mattoo, Aaditya & Singh, Harsha V, 1994. "Eco-labelling: Policy Considerations," Kyklos, Wiley Blackwell, vol. 47(1), pages 53-65.
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