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Eco-labels, Production Related Externalities and Trade

We analyze the trade and welfare effects of eco-labels in a domestic market with one domestic firm and one foreign firm. Pollution is production related, and the government can choose between including the product category in an eco-label scheme and setting an environmental standard. The environmental standard will only apply to the domestic firm, while both firms can adopt the eco-label. Given that the environmental damage is not too large, we find that it is optimal for the government to introduce an eco-label scheme. An eco-label scheme is optimal even though the domestic firm may loose profit and the foreign firm may gain. Hence, the eco-label scheme is not introduced for protectionist purposes. Further, if the government for some reason were prevented from using eco-labels, global, domestic and foreign welfare would be hampered.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 332.

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Date of creation: Oct 2002
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Handle: RePEc:ssb:dispap:332
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  1. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  2. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
  3. B. Howarth, Richard & Haddad, Brent M. & Paton, Bruce, 2000. "The economics of energy efficiency: insights from voluntary participation programs," Energy Policy, Elsevier, vol. 28(6-7), pages 477-486, June.
  4. CREMER, Helmuth & THISSE, Jacques-François, . "On the taxation of polluting products in a differentiated industry," CORE Discussion Papers RP -1384, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Tom Tietenberg, 1998. "Disclosure Strategies for Pollution Control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 587-602, April.
  6. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
  7. Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," CORE Discussion Papers 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Mari Rege, 2000. "Strategic Policy and Environmental Quality: Helping the Domestic Industry to Provide Credible Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(3), pages 279-296, March.
  9. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
  10. 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.
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