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19 Eur. J.L. & Econ. 5 (2005)

handle is hein.journals/eurjlwec19 and id is 1 raw text is: European Journal of Law and Economics, 19: 5-16, 2005 - © 2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands. Can Labelling Policies Do More Harm Than Good? An Analysis Applied to Environmental Labelling Schemes DOUADIA BOUGHERARA d.bougherara@enesad.inra.fr Department of Economics and Management, University of Burgundy, UMR INRA - ENESAD CESAER, Agricul- tural Economics and Sociology Department, 26 Bd Dr Petitjean BP 87999 21079 DIJON Cedex, France GILLES GROLLEAU g.grolleau@enesad.inra.fr LUC THIEBAUT thiebaut@enesad.inra.fr UMR INRA - ENESAD CESAER, Agricultural Economics and Sociology Department, 26 Bd Dr Petitjean BP 87999 21079 DIJON Cedex, France Abstract In certain plausible circumstances, the introduction of labelling schemes can lead to adverse effects. In the case of ecolabelling, the adverse effects are an environmental degradation rather than an environmental improvement. To take into account the environmental sensitiveness or responsiveness of consumers, we introduce the concept of environmental elasticity which enables us to classify goods. In a basic analytical model, we describe the condi- tions under which different outcomes overall impacts of change in environmental quality due to environmental labelling arise after the introduction of an ecolabelling scheme. We show that an ecolabelling scheme can lead to an increase in purchases of environmentally sustainable products. The net effect on the environment can be worse than the initial situation without ecolabelling, because the environmental unit improvement is compensated by an over-consumption. We suggest several tests to detect this potential perverse effect, some policy implications to avoid it and stress the need for further research. Keywords: labelling, ecolabelling, policy, environmental elasticity JEL Classification: Dl1, L15, Q28 I can sum up my notion of good practice in three injunctions. 1. Keep it simple. 2. Get it right. 3. Make it plausible. Robert Solow (2001) 1. Introduction and review of the literature The credible labelling of products is frequently considered as an accurate information-based policy to promote informed choices, notably in the case of credence products I such as light products, low-nicotine cigarettes, low-alcohol beers or protective solar filters. Following the same line, the ecolabelling of products is frequently presented as an appropriate, though partial policy tool to regulate environmental problems.2 It is expected that ecolabels, by providing environmental information, will encourage consumers to discriminate between

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