An economic model of ecolabeling

Firms would like to capitalize on consumers' willingness to pay more for goods that use environmentally friendly production techniques, but have difficulty credibly conveying their environmental friendliness. One possible remedy is “ecolabeling,” where a third party certifies firms' products. To model this phenomenon, I analyzed a market characterized by asymmetric information in which firms decide whether to seek an ecolabel. Market equilibrium is discussed in three settings: where both technologies and outputs are fixed (so the only choice is whether to seek certification), where technologies are fixed but outputs are not, and where firms can choose both technology and output.

[1]  M. Darby,et al.  Free Competition and the Optimal Amount of Fraud , 1973, The Journal of Law and Economics.

[2]  Joseph E. Stiglitz,et al.  The Theory of "Screening," Education, and the Distribution of Income , 1975 .

[3]  S. Rosen,et al.  Monopoly and product quality , 1978 .

[4]  B. Klein,et al.  The Role of Market Forces in Assuring Contractual Performance , 1981, Journal of Political Economy.

[5]  J. Sobel,et al.  Equilibrium Selection in Signaling Games , 1987 .

[6]  David M. Kreps,et al.  Signaling Games and Stable Equilibria , 1987 .

[7]  Frances Cairncross,et al.  Costing the Earth , 1991 .

[8]  Frederic P. Sterbenz,et al.  Imperfect Product Testing and Market Size , 1994 .

[9]  Aaditya Mattoo,et al.  Eco‐Labelling: Policy Considerations , 1994 .

[10]  Environmentally Preferable Commodities , 1997 .

[11]  Eco-Labelling and International Trade , 1997 .

[12]  R. Vossenaar.  Eco-Labelling and International Trade: The Main Issues , 1997 .

[13]  Eco-Labelling: Practical Use of the Cradle-to-Grave Approach , 1997 .

[14]  Julian R. W. Morris,et al.  Green Goods? Consumers, Product Labels and the Environment , 1997 .

[15]  Tom Tietenberg,et al.  Disclosure Strategies for Pollution Control , 1998 .

[16]  Stefanie Engel.  Achieving Environmental Goals in a World of Trade and Hidden Action: The Role of Trade Policies and Eco-Labeling , 1998 .

[17]  Michele Moretto,et al.  Is Ecolabelling a Reliable Environmental Policy Measure? , 1999 .

[18]  Stefanie Kirchhoff,et al.  Green Business and Blue Angels , 2000 .

[19]  Roger A. Sedjo,et al.  Eco-Labeling Consequences in General Equilibrium: A Graphical Assessment , 2000 .

[20]  Labelling, Trade and Genetically Modified Organisms , 2000, Journal of World Trade.

[21]  J. Bureau,et al.  Product Safety Provision and Consumers' Information , 2000 .

[22]  A. Zago,et al.  A simple model of voluntary vs mandatory labelling of GMOs , 2001 .

[23]  Henk Folmer,et al.  The International Yearbook of Environmental Resource Economics 2001/2002 , 2001 .

[24]  J. Crespi,et al.  How Should Food Safety Certification Be Financed? , 2001 .

[25]  Helmut Karl,et al.  Economic Aspects of Environmental Labelling , 2002 .

[26]  S. Swallow,et al.  Voluntary Eco-Labeling and the Price Premium , 2002, Land Economics.

[27]  T. Cason,et al.  Environmental Labeling and Incomplete Consumer Information in Laboratory Markets , 2002 .