Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/78276
Authors: 
Kuhn, Michael
Year of Publication: 
1999
Series/Report no.: 
Thünen-Series of Applied Economic Theory 20
Abstract: 
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.
Subjects: 
asymmetric information
eco-labelling
entry
market structure
screening
vertical dif-ferentiation
JEL: 
L11
L15
Q28
Document Type: 
Working Paper

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