Green Certification, Heterogeneous Producers, and Green Consumers: A Welfare Analysis of Environmental Regulations

Posted: 28 Aug 2017 Last revised: 3 Aug 2018

See all articles by Jason M. Walter

Jason M. Walter

University of Wisconsin - Stout

Yang-Ming Chang

Kansas State University - Department of Economics

Date Written: August 22, 2017

Abstract

We develop a vertical differentiation model to analyze welfare implications of environmental policies in a competitive market with production and consumption heterogeneity. Consumers with heterogeneous preferences choose between non-green and certified green products, while producers with heterogeneous production costs decide whether to engage in green production. In order for green products to be recognized by consumers, producers must join a green club. Key findings are summarized as follows. (i) The number of green producers, environmental standard, and overall welfare under the market solution are all socially sub-optimal. (ii) The introduction of a subsidy policy for greener production and standards is shown to increase social welfare, but is not Pareto optimal. (iii) A dual policy, which combines abatement subsidizes for a greener production standard and a tax charge for green certification, is shown to be the Pareto-optimal outcome.

Keywords: Eco-Certification, Clubs, Producer Heterogeneity, Green Consumers, Environmental Regulations

JEL Classification: Q58, D41, D71, H23

Suggested Citation

Walter, Jason M. and Chang, Yang-Ming, Green Certification, Heterogeneous Producers, and Green Consumers: A Welfare Analysis of Environmental Regulations (August 22, 2017). Journal of Regulatory Economics, (2017), 52 (3), pp. 333-361.. Available at SSRN: https://ssrn.com/abstract=3024164

Jason M. Walter

University of Wisconsin - Stout ( email )

Menomonie , WI 54751
United States

Yang-Ming Chang (Contact Author)

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States
785-532-4573 (Phone)

HOME PAGE: http://www.k-state.edu/economics/facsheets/chang.htm

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