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 wh o are not. Even though labelling does not remedy the negative external ity imposed by unconcerned consumers on those who are concerned, it ma y stimulate concern for the environment and increase the demand for en vironment-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 i ncreased sales of products made by both environment-friendly and envir onment-unfriendly methods. An empirical test is suggested to establish when labelling can be usefully introduced.