Environmental Labeling

Andrea Podhorsky ()
Additional contact information
Andrea Podhorsky: York University, Toronto

Working Papers from York University, Department of Economics

Abstract: 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.

Keywords: credence goods; disclosure; environmental policy; firm heterogeneity and product labeling. (search for similar items in EconPapers)
JEL-codes: L15 Q58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-12
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env, nep-mkt and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dept.econ.yorku.ca/~andrea/envlabeling.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to dept.econ.yorku.ca:80 (No such host is known. )

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:yca:wpaper:2009_3

Access Statistics for this paper

More papers in Working Papers from York University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Support ( this e-mail address is bad, please contact ).