A Theory of Multi-Tier Ecolabel Competition

50 Pages Posted: 19 Jun 2016

See all articles by Carolyn Fischer

Carolyn Fischer

Resources for the Future

Thomas P. Lyon

University of Michigan, Stephen M. Ross School of Business

Date Written: January 2016

Abstract

We model competing ecolabels sponsored by an industry trade association and an environmental group. For either sponsor in autarky, multi-tier labels are more attractive when there are many producers with high cost of quality, and the cost gap between low-cost and high-cost firms is large. When the two sponsors compete using binary ecolabels, multiple equilibria exist, and either sponsor may offer the more ambitious label; competition may increase environmental protection. When sponsors compete using multi-tier labels, however, there exists a unique equilibrium and competition produces less environmental protection than would the NGO in autarky.

Keywords: multi-tier ecolabels

JEL Classification: L31, L15, D83

Suggested Citation

Fischer, Carolyn and Lyon, Thomas P., A Theory of Multi-Tier Ecolabel Competition (January 2016). Ross School of Business Paper No. 1319, Available at SSRN: https://ssrn.com/abstract=2797256 or http://dx.doi.org/10.2139/ssrn.2797256

Carolyn Fischer (Contact Author)

Resources for the Future ( email )

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Thomas P. Lyon

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
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