A theory of multitier ecolabel competition

Carolyn Fischer, Thomas P. Lyon*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Ecolabels are widely used to inform markets about credence attributes of products. We present the first analysis of ecolabel competition that allows labels to have multiple tiers (e.g., silver/gold/platinum). For either an industry association or an NGO sponsor in autarky, binary labels are preferred when a large enough share of producers have a low cost of quality and when cost heterogeneity across firms is limited; multitier labels are preferred when a large enough share of producers have a high cost of quality and when cost heterogeneity is substantial. The NGO implements welfare-maximizing standards under certain conditions; the industry never does. When sponsors with differing objectives compete, the unique equilibrium involves multitier labels, with less environmental protection than the NGO in autarky would provide. The multitier equilibrium is robust to endogenous entry by producers.

Original languageEnglish
Pages (from-to)461-501
Number of pages41
JournalJournal of the Association of Environmental and Resource Economists
Volume6
Issue number3
DOIs
Publication statusPublished - 1 May 2019

Keywords

  • Certification
  • Credence goods
  • Ecolabels
  • NGOs
  • Vertical differentiation

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