IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Environmental Labeling

  • Andrea Podhorsky

    ()

    (York University, Toronto)

Registered author(s):

    This paper studies how information disclosed by voluntary environmental labels creates incentives for firms to invest in environmentally-friendly production technologies. I develop a model with differentiated products and imperfectly-informed consumers. Consumers care about the environmental characteristics of goods (for example, how they were produced), but cannot directly observe these product characteristics. Firms differ in their abilities to develop "clean" technologies, but have no incentive to do so absent government regulation or a policy that provides information to consumers. A scheme of voluntary labels, awarded to firms that achieve some chosen level of environmental friendliness, gives some firms enough incentive to develop clean technologies, while others choose to produce "dirty" goods. Each consumer is individually ineffective in reducing aggregate environmental damage but consumers purchase products according to how they privately value environmental quality. I parameterize the relationship between the environmental quality consumers experience privately from their own consumption of a product and the intensity of its environmental damage. I use the model to explain how voluntary labels improve consumer welfare and characterize the welfare maximizing labeling standard. I also contrast the effects of a labeling program on consumer welfare with those of compulsory environmental regulation.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://dept.econ.yorku.ca/~andrea/envlabeling.pdf
    Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Support)


    Download Restriction: no

    Paper provided by York University, Department of Economics in its series Working Papers with number 2009_3.

    as
    in new window

    Length: 39 pages
    Date of creation: Dec 2009
    Date of revision:
    Handle: RePEc:yca:wpaper:2009_3
    Contact details of provider: Postal: 4700 Keele Street, Toronto, Ontario, M3J 1P3
    Phone: (416) 736-5083
    Fax: (416) 736-5987
    Web page: http://dept.econ.yorku.ca/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
    2. 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.
    3. Bjorner, Thomas Bue & Hansen, L.G.Lars Garn & Russell, Clifford S., 2004. "Environmental labeling and consumers' choice--an empirical analysis of the effect of the Nordic Swan," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 411-434, May.
    4. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
    5. Emmanuel Petrakis & Eftichios S. Sartzetakis & Anastasios Xepapadeas, 2004. "Environmental Information Provision as a Public Policy Instrument," Working Papers 0414, University of Crete, Department of Economics.
    6. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
    7. Nimon, Wesley & Beghin, John C., 1999. "Are Eco-Labels Valuable? Evidence from the Apparel Industry," Staff General Research Papers 1514, Iowa State University, Department of Economics.
    8. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
    9. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    10. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
    11. Lucie Bottega & Jenny De Freitas, 2009. "Public, Private and Nonprofit Regulation for Environmental Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 105-123, 03.
    12. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    13. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
    14. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
    15. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:yca:wpaper:2009_3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Support)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.