<i>But What Does It Mean?</i> Competition between Products Carrying Alternative Green Labels When Consumers Are Active Acquirers of Information

Abstract

Programs that certify the environmental (or other social) attributes of firms are common. But the proliferation of labeling schemes makes it difficult for consumers to know what each one means—what level of “greenness” does a particular label imply? We provide the first model in which consumers can expend effort to learn what labels mean. The relationship between information acquisition costs, firm pricing decisions, the market shares obtained by alternatively labeled goods and a brown “backstop” good, and total environmental impact proves complex. Consumer informedness can have perverse implications. In plausible cases a reduction in the cost of information damages environmental outcomes. Our results challenge the presumption that provision of environmental information to the public is necessarily good for welfare or the environment.