Tier count in traffic-light eco-labels

Erik Ansink and Frederic Klapwijk
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Erik Ansink: Vrije Universiteit Amsterdam
Frederic Klapwijk: Vrije Universiteit Amsterdam

No 26-019/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We study whether the number of tiers in a traffic-light eco-label affects consumer welfare. We develop a model in which consumers observe price, quality, and the label tier, but infer a product's environmental quality ("greenness'") imperfectly. In that setting, adding a tier can improve the information content of the label while still lowering welfare near newly created cutoffs. We then use a discrete choice experiment on trash bags with two-tier and three-tier traffic-light labels to test the behavioral ingredients of the model. Estimated treatment effects in the choice experiment show that adding a middle tier makes respondents more likely to choose the highest label tier, increases price sensitivity, and reduces the use of price as a cue for greenness. We interpret these results as evidence that tier count changes both the choice response to the highest label tier and price-based inference. A structural interpretation also yields a positive estimate of the price-proxy parameter, and the three-tier choice data imply a positive but modest separation between the yellow and green tiers under transparent normalizations.

Keywords: Eco-labels; traffic-light labels; consumer inference; environmental disclosure; consumer welfare (search for similar items in EconPapers)
JEL-codes: D12 D83 L15 Q58 (search for similar items in EconPapers)
Date: 2026-05-08
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