Minimum quality standards and compulsory labeling when environmental quality is not observable

Laura Birg and Jan S. Voßwinkel

Resource and Energy Economics, 2018, vol. 53, issue C, 62-78

Abstract: This paper studies the effect of a minimum quality standard, a compulsory labeling scheme, and the combination of both instruments in a vertical differentiation model when not all quality dimensions can be observed by consumers. Both a minimum quality standard for the non-observable quality dimension and a labeling scheme that informs consumers about the non-observable quality dimension increase prices and have no effect on the observable quality dimension or market shares. The combination of a minimum quality standard and a labeling scheme increases both the unobservable and the observable quality dimension, increases prices, and shifts market shares from the high quality firm to the low quality firm. Social welfare is higher under the combination of both instruments than under no regulation, the minimum quality standard or labeling applied as only instrument.

Keywords: Labeling; Minimum quality standard; Environmental quality (search for similar items in EconPapers)
JEL-codes: L13 L15 Q58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0928765517300489
Full text for ScienceDirect subscribers only

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:eee:resene:v:53:y:2018:i:c:p:62-78

DOI: 10.1016/j.reseneeco.2018.01.003

Access Statistics for this article

Resource and Energy Economics is currently edited by J. F. Shogren and S. Smulders

More articles in Resource and Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().