Ecolabel award schemes have become increasingly popular. Their rationale is to enable (concerned) consumers to identify "green" products. By so doing, ecolabelling should stimulate environmental innovation, and induce firms to reduce the supply of conventional (polluting) products. Our analysis however points out that the two phenomena are not necessarily correlated. Through a dynamic model of investment decisions, the paper outlines the situations under which ecolabelling could induce perverse effects (increased investment in conventional technologies) and examines whether setting quantitative restrictions on the issuing of labels could constitute an antidote.
Ecolabel Green Products Environmental Policy Environmental Innovation