Efficiency properties of binary ecolabeling

Yoshifumi Konishi

Resource and Energy Economics, 2011, vol. 33, issue 4, 798-819

Abstract: We investigate efficiency properties of binary ecolabels in a homogeneous good market with heterogeneous consumers. Faced with the minimum technology standard, firms make endogenous entry, certification, and price/quantity decisions. We consider both perfect and imperfect competition with or without sunk fixed costs. Our findings are as follows. Ecolabeling alone does not achieve the first-best outcome and, to achieve the second best, may need to set the standard less strict than the efficient level. Without sunk fixed costs, ecolabeling can achieve the first-best outcome provided that both the technology standard and the complementary pollution tax are set at efficient levels. With sunk fixed costs, however, differential excise taxes that would restore allocative efficiency induce more entry than optimal, and thus, can be even welfare decreasing relative to no tax outcome. Tightening the technology standard may ameliorate such an adverse effect of the corrective tax system by reducing excessive entry and pollution per output by the certified firms.

Keywords: Ecolabeling; Environmental standard; Discrete product choice; Product differentiation (search for similar items in EconPapers)
JEL-codes: D4 L1 Q2 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:33:y:2011:i:4:p:798-819

DOI: 10.1016/j.reseneeco.2011.06.002

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