ECO-LABELING - POLICY CONSIDERATIONS

This paper argues that eco-labelling could, in certain cases, lead to an adverse effect on the environment. In every society there are some consumers who are concerned about environmental problems and others who are not. Even though labelling does not remedy the negative externality imposed by unconcerned consumers on those who are concerned, it may stimulate concern for the environment and increase the demand for environment-friendly products. However, it is precisely this consequence of labelling which can lead to perverse results. In certain plausible cases, the differentiation of products due to labelling may lead to increased sales of products made by both environment-friendly and environment-unfriendly methods. An empirical test is suggested to establish when labelling can be usefully introduced.