The Economics of Voluntary Versus Mandatory Labels

Posted: 8 Oct 2014

See all articles by Brian E. Roe

Brian E. Roe

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Mario F. Teisl

University of Maine - Department of Resource Economics and Policy

Corin R. Deans

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Date Written: November 2014

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.

Suggested Citation

Roe, Brian E. and Teisl, Mario F. and Deans, Corin R., The Economics of Voluntary Versus Mandatory Labels (November 2014). Annual Review of Resource Economics, Vol. 6, Issue 1, pp. 407-427, 2014. Available at SSRN: https://ssrn.com/abstract=2507233 or http://dx.doi.org/10.1146/annurev-resource-100913-012439

Brian E. Roe (Contact Author)

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States
614-688-5777 (Phone)

HOME PAGE: http://www-agecon.ag.ohio-state.edu/people/display.cfm?User_ID=roe30

Mario F. Teisl

University of Maine - Department of Resource Economics and Policy ( email )

200 Winslow Hall
Orno, ME 04469-5782
United States
207-581-3162 (Phone)
207-581-4278 (Fax)

Corin R. Deans

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

Columbus, OH 43210
United States

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