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Minimum quality standards and compulsory labeling when environmental quality is not observable

Author

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  • Birg, Laura
  • Voßwinkel, Jan S.

Abstract

This paper studies the effect of a minimum quality standard, a compulsory labeling scheme, and the combination of both instruments in a vertical differentiation model when not all quality dimensions can be observed by consumers. Both a minimum quality standard for the non-observable quality dimension and a labeling scheme that informs consumers about the non-observable quality dimension increase prices and have no effect on the observable quality dimension or market shares. The combination of a minimum quality standard and a labeling scheme increases both the unobservable and the observable quality dimension, increases prices, and shifts market shares from the high quality firm to the low quality firm. Social welfare is higher under the combination of both instruments than under no regulation, the minimum quality standard or labeling applied as only instrument.

Suggested Citation

  • Birg, Laura & Voßwinkel, Jan S., 2018. "Minimum quality standards and compulsory labeling when environmental quality is not observable," Resource and Energy Economics, Elsevier, vol. 53(C), pages 62-78.
    • Handle: RePEc:eee:resene:v:53:y:2018:i:c:p:62-78
    DOI: 10.1016/j.reseneeco.2018.01.003
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    References listed on IDEAS

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    Cited by:

    1. Yokessa, Maïmouna & Marette, Stéphan, 2019. "A Review of Eco-labels and their Economic Impact," International Review of Environmental and Resource Economics, now publishers, vol. 13(1-2), pages 119-163, April.
    2. Charu Grover & Sangeeta Bansal, 2021. "Effect of green network and emission tax on consumer choice under discrete continuous framework," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(4), pages 641-666, October.

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    More about this item

    Keywords

    Labeling; Minimum quality standard; Environmental quality;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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