But What Does it Mean? Competition between Products Products Carrying Green Labels when Consumers are Active Acquirers of Information
39 Pages Posted: 3 Dec 2019
Date Written: August 1, 2019
Programs that certify the environmental (or other social) attributes of ﬁrms are common. But the proliferation of labeling schemes makes it diﬃcult for consumers to know what each one means – what level of ‘greenness’ does a particular label imply? We provide the ﬁrst model in which consumers can expend eﬀort to learn what labels mean. The relationship between information acquisition costs, ﬁrm pricing decisions, the market shares obtained by alternatively labeled goods and a brown ‘backstop’ good, and total environmental impact prove complex. Consumer informedness can have perverse implications. In plausible cases a reduction in the cost of information damages environmental outcomes. Our results challenge the presumption that provision of environmental information to the public is necessarily good for welfare or the environment.
Keywords: eco-labeling, green consumerism,information-based instruments
JEL Classification: D83, L15, L31, Q52
Suggested Citation: Suggested Citation