Green Lemons - Environmental Labels and Entry into an Environmentally Differentiated Market under Asymmetric Information

Arbeitspapier

The paper inquires whether a public eco-label mitigatesadverse selection, where an ecologically superior (green) product variant is underprovided. A model, integrating entry into a perfectly competitive, vertically differentiated industry and rationally expected quality structure (REQS) under asymmetric information, provides conditions for the label, serving as screening device, to increase green supply and curb pooling. Perverse reactions entail decreasing green supply, enhanced pooling, or increasing non-green supply. It is shown that the common single crossing property disregards the impact of changes in REQS on absolute profitability and may misdiagnose firms' incentives to attain the label. if labelling causes market expansion, pollution may increase even if substitution towards the green variant occurs. However, this only happens if both variants are environmentally sensitive in a well-defined sense.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Thünen-Series of Applied Economic Theory - Working Paper ; No. 20

Classification and Topics

• Classification: Wirtschaft ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Information and Product Quality; Standardization and Compatibility ; Renewable Resources and Conservation: Government Policy
• Subject: asymmetric information ; eco-labelling ; entry ; market structure ; screening ; vertical dif-ferentiation ; Produktqualität ; Umweltzeichen ; Markteintritt ; Asymmetrische Information ; Produktdifferenzierung ; Marktstruktur ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kuhn, Michael
• Event: Veröffentlichung
• (who): Universität Rostock, Institut für Volkswirtschaftslehre
• (where): Rostock
• (when): 1999

Further information

• Handle: http://hdl.handle.net/10419/78276
• Last update: 10.03.2025, 11:42 AM CET