The Economics of Voluntary Versus Mandatory Labels

Brian Roe, Mario Teisl () and Corin R. Deans ()
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Corin R. Deans: Department of Agricultural, Environmental and Development Economics, Ohio State University, Columbus, Ohio 43210

Annual Review of Resource Economics, 2014, vol. 6, issue 1, 407-427

Abstract: Labels address a market failure—asymmetric information—through costly expenditures borne by consumers, firms, and taxpayers. In this review, we explore when mandatory and voluntary labeling policies may be socially optimal. Although the analysis ostensibly revolves around simple comparisons of labeling costs and the subsequent benefits from improved information symmetry, more symmetric information may alter social welfare in other ways, e.g., by altering the production of externalities, the exercise of market power, or expenditures on rent-seeking activities. We review work that contributes to a more complete analysis of the relative merits of mandatory and voluntary labeling; that assesses the distribution of welfare effects across affected groups; and that discusses political economy issues, particularly in the context of voluntary labels in international trade. We summarize key patterns of results concerning the relative desirability of mandatory and voluntary labels and discuss likely future directions in this evolving literature.

Keywords: ecolabel; quality; differentiation; asymmetric information; policy; trade (search for similar items in EconPapers)
JEL-codes: D82 Q50 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (38)

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