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Monitoring Eco-Labels: You Can Have Too Much of a Good Thing

  • Thomas Liebi
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    An increasing number of product labels is making environmental claims. Typically, these claims are non-verifiable to consumers, they represent a credence attribute of the product. The usual way to handle this problem is external monitoring of such labels. We consider a model where firms in a competitive market choose product quality and the intensity of monitoring. It is shown that all the firms producing the high quality credence good will choose the same level of monitoring, i.e., an industry standard will evolve. However, in a competitive equilibrium there will be more monitoring than is socially desirable.

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    File URL: http://www.vwl.unibe.ch/papers/dp/dp0207.pdf
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    Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0207.

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    Date of creation: Jul 2002
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    Handle: RePEc:ube:dpvwib:dp0207
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    1. Luis M.B. Cabral, 2000. "Stretching Firm and Brand Reputation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 658-673, Winter.
    2. Andersson, Fredrik, 2002. "Pooling reputations," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 715-730, May.
    3. Thomas Liebi, 2002. "Trusting Labels: A Matter of Numbers?," Diskussionsschriften dp0201, Universitaet Bern, Departement Volkswirtschaft.
    4. Choi, Jay Pil, 1998. "Brand Extension as Informational Leverage," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 655-69, October.
    5. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
    6. Winand Emons, 1995. "Credence Goods Monopolists," Diskussionsschriften dp9501, Universitaet Bern, Departement Volkswirtschaft.
    7. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
    8. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
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