Why is Price useless to signal Environmental Quality ?

Alexandre Volle ()
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Alexandre Volle: CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

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Abstract: The present paper investigates the pricing behavior of a green firm competing against a brown firm where the polluting good is sold in a perfect competitive market. The distorsion of the price to signal a green product is too great to face any demand. Pooling price equilibria emerge as the most plausible situations as long as the brown firm has the possibility to mimic the pricing behavior of the green firm. A green producer is thus constrained to practice uninformative prices which can conduct to the lemon outcome (Akerlof 1970)

Keywords: credence attributes; asymmetric information; price; signaling (search for similar items in EconPapers)
Date: 2018-05-21
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Published in 17th session of the Institutional and Organizational Economics Academy, May 2018, Cargèse, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02101118

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