1932

Abstract

Labels address a market failure—asymmetric information—through costly expenditures borne by consumers, firms, and taxpayers. In this review, we explore when mandatory and voluntary labeling policies may be socially optimal. Although the analysis ostensibly revolves around simple comparisons of labeling costs and the subsequent benefits from improved information symmetry, more symmetric information may alter social welfare in other ways, e.g., by altering the production of externalities, the exercise of market power, or expenditures on rent-seeking activities. We review work that contributes to a more complete analysis of the relative merits of mandatory and voluntary labeling; that assesses the distribution of welfare effects across affected groups; and that discusses political economy issues, particularly in the context of voluntary labels in international trade. We summarize key patterns of results concerning the relative desirability of mandatory and voluntary labels and discuss likely future directions in this evolving literature.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-100913-012439
2014-10-05
2024-06-24
Loading full text...

Full text loading...

/deliver/fulltext/resource/6/1/annurev-resource-100913-012439.html?itemId=/content/journals/10.1146/annurev-resource-100913-012439&mimeType=html&fmt=ahah

Literature Cited

  1. Akerlof GA. 1970. The market for “lemons”: quality uncertainty and the market mechanism. Q. J. Econ. 84:3488–500 [Google Scholar]
  2. Allais O, Etile F, Lecocq S. 2012. Mandatory labelling, nutritional taxes and market forces: an empirical evaluation of fat policies in the French fromage blanc and yogurt market. Work. Pap., Health Econom. Data Group, Univ. York. http://www.york.ac.uk/media/economics/documents/herc/wp/12_14.pdf
  3. Amacher GS, Koskela E, Ollikainen M. 2004. Environmental quality competition and eco-labeling. J. Environ. Econ. Manag. 47:2284–306 [Google Scholar]
  4. Auld G, Gulbrandsen LH, McDermott CL. 2008. Certification schemes and the impacts on forests and forestry. Annu. Rev. Environ. Resour. 33:187–211 [Google Scholar]
  5. Baksi S, Bose P. 2007. Credence goods, efficient labelling policies, and regulatory enforcement. Environ. Resour. Econ. 37:2411–30 [Google Scholar]
  6. Banerjee A, Solomon BD. 2003. Eco-labeling for energy efficiency and sustainability: a meta-evaluation of US programs. Energy Policy 31:2109–23 [Google Scholar]
  7. Basu AK, Chau NH, Grote U. 2004. On export rivalry and the greening of agriculture—the role of eco-labels. Agric. Econ. 31:2-3135–47 [Google Scholar]
  8. Beath J, Katsoulacos Y. 1991. The Economic Theory of Product Differentiation Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  9. Blackman A, Rivera J. 2010. The evidence base for environmental and socioeconomic impacts of “sustainable” certification. Discuss. Pap. 10-10, Resour. Future, Washington, DC
  10. Board O. 2009. Competition and disclosure. J. Ind. Econ. 57:1197–213 [Google Scholar]
  11. Bonroy O, Constantatos C. 2008. On the use of labels in credence goods markets. J. Regul. Econ. 33:3237–52 [Google Scholar]
  12. Bonroy O, Constantatos C. 2013. On the economics of labels: a review of the theoretical literature. Work. Pap. 2013-01, Grenoble Appl. Econ. Lab.
  13. Boström M, Klintman M. 2006. State-centered versus nonstate-driven organic food standardization: a comparison of the US and Sweden. Agric. Human Values 23:2163–80 [Google Scholar]
  14. Bougherara D, Grolleau G, Thiébaut L. 2007. Benefiting from a clean environment versus undertaking efforts to protect the environment. Appl. Econ. Perspect. Policy 29:2216–26 [Google Scholar]
  15. Brécard D, Hlaimi B, Lucas S, Perraudeau Y, Salladarré F. 2009. Determinants of demand for green products: an application to eco-label demand for fish in Europe. Ecol. Econ. 69:1115–25 [Google Scholar]
  16. Cai Z, Aguilar FX. 2013. Consumer stated purchasing preferences and corporate social responsibility in the wood products industry: a conjoint analysis in the US and China. Ecol. Econ. 95:118–27 [Google Scholar]
  17. Cashore B, Auld G, Newsom D. 2003. Forest certification (eco-labeling) programs and their policy-making authority: explaining divergence among North American and European case studies. For. Policy Econ. 5:3225–47 [Google Scholar]
  18. Caswell JA. 2000. Labeling policy for GMOs: to each his own?. AgBioForum 3:11–5 [Google Scholar]
  19. Caswell JA, Mojduszka E. 1996. Using informational labeling to influence the market for quality in food products. Am. J. Agric. Econ. 78:51248–53 [Google Scholar]
  20. Cicia G, Colantuoni F. 2010. Willingness to pay for traceable meat attributes: a meta-analysis. Int. J. Food Syst. Dyn. 1:3252–63 [Google Scholar]
  21. Crespi JM, Marette S. 2001. How should food safety certification be financed?. Am. J. Agric. Econ. 83:4852–61 [Google Scholar]
  22. Dannenberg A, Scatasta S, Sturm B. 2011. Mandatory versus voluntary labelling of genetically modified food: evidence from an economic experiment. Agric. Econ. 42:3373–86 [Google Scholar]
  23. Dosi C, Moretto M. 2010. Environmental innovation, war of attrition and investment grants. Int. Game Theory Rev. 12:137–59 [Google Scholar]
  24. Dranove D, Jin GZ. 2010. Quality disclosure and certification: theory and practice. J. Econ. Lit. 48:4935–63 [Google Scholar]
  25. Dröge S. 2001. Ecological labelling and the World Trade Organization. Discuss. Pap. 242, DIW (Ger. Inst. Econ. Res.)
  26. Ehmke MT. 2006. International differences in consumer preferences for food country-of-origin: a meta-analysis. Work. Pap., Dep. Agric. Appl. Econ., U. Wyo.
  27. Ellison G, Ellison SF. 2009. Search, obfuscation, and price elasticities on the internet. Econometrica 77:2427–52 [Google Scholar]
  28. ECNZ (Environmental Choice New Zealand) 2012. Annual report 2011–12. Rep., ECNZ, Auckland. http://issuu.com/michaelhooper/docs/ecnz_annual_report_2012_final_web
  29. Farrell J, Saloner G. 1985. Standardization, compatibility, and innovation. Rand J. Econ. 16:70–83 [Google Scholar]
  30. FDA (US Food Drug Admin.) 2012. Significant dates in US food and drug law history. http://www.fda.gov/aboutfda/whatwedo/history/milestones/ucm128305.htm
  31. Fishman MJ, Hagerty KM. 2003. Mandatory versus voluntary disclosure in markets with informed and uninformed customers. J. Law Econ. Organ. 19:145–63 [Google Scholar]
  32. Florax RJ, Travisi CM, Nijkamp P. 2005. A meta-analysis of the willingness to pay for reductions in pesticide risk exposure. Eur. Rev. Agric. Econ. 32:4441–67 [Google Scholar]
  33. Grolleau G, Ibanez L, Mzoughi N. 2007. Industrialists hand in hand with environmentalists: how eco-labeling schemes can help firms to raise rivals’ costs. Eur. J. Law Econ. 24:3215–36 [Google Scholar]
  34. Grossman SJ. 1981. The informational role of warranties and private disclosure about product quality. J. Law Econ. 24:3461–83 [Google Scholar]
  35. Guo L, Zhao Y. 2009. Voluntary quality disclosure and market interaction. Mark. Sci. 28:3488–501 [Google Scholar]
  36. Hamilton SF, Zilberman D. 2006. Green markets, eco-certification, and equilibrium fraud. J. Environ. Econ. Manag. 52:3627–44 [Google Scholar]
  37. Harrison K. 2001. Voluntarism and environmental governance. Governing the Environment: Persistent Challenges, Uncertain Innovations Vol. 1 Parson EA. 207–46 Toronto/Buffalo, NY/London: Univ. Toronto Press [Google Scholar]
  38. Hayward SF. 2006. Index of Leading Environmental Indicators 2006: The Nature and Sources of Ecological Progress in the US and the World San Francisco, CA: Pac. Res. Inst., 11th ed.. [Google Scholar]
  39. Heyes AG, Maxwell JW. 2004. Private vs. public regulation: political economy of the international environment. J. Environ. Econ. Manag. 48:2978–96 [Google Scholar]
  40. Hirshleifer D, Lim S, Teoh SH. 2004. Disclosure to an audience with limited attention. Work. Pap. Available at SSRN 604142
  41. Hotz VJ, Xiao M. 2013. Strategic information disclosure: the case of multiattribute products with heterogeneous consumers. Econ. Inq. 51:1865–81 [Google Scholar]
  42. Hu W, Adamowicz WL, Veeman MM. 2006. Labeling context and reference point effects in models of food attribute demand. Am. J. Agric. Econ. 88:41034–49 [Google Scholar]
  43. Hu W, Veeman MM, Adamowicz WL. 2005. Labelling genetically modified food: heterogeneous consumer preferences and the value of information. Can. J. Agric. Econ. 53:183–102 [Google Scholar]
  44. Huffman W, Rousu M, Shogren JF, Tegene A. 2002. Should the United States regulate mandatory labeling for genetically modified foods? Work. Pap., Dep. Econ., Iowa State Univ.
  45. Ibanez L, Laye J. 2008. Ecocertification, differentiation in retailing and upstream market power. Int. J. Agric. Resour. Gov. Ecol. 7:1158–73 [Google Scholar]
  46. Ippolito PM, Mathios AD. 1990. Information, advertising and health choices: a study of the cereal market. Rand J. Econ. 21:3459–80 [Google Scholar]
  47. Jovanovic B. 1982. Truthful disclosure of information. Bell J. Econ. 13:136–44 [Google Scholar]
  48. Kaiser MJ, Edwards-Jones G. 2006. The role of ecolabeling in fisheries management and conservation. Conserv. Biol. 20:2392–98 [Google Scholar]
  49. Karlsen KM, Hermansen Ø, Dreyer BM. 2012. Eco-labeling of seafood: Does it affect the harvesting patterns of Norwegian fishermen?. Mar. Policy 36:51123–30 [Google Scholar]
  50. Klooster D. 2005. Environmental certification of forests: the evolution of environmental governance in a commodity network. J. Rural Stud. 21:4403–17 [Google Scholar]
  51. Kotchen MJ, Moore MR. 2007. Private provision of environmental public goods: household participation in green-electricity programs. J. Environ. Econ. Manag. 53:1–16 [Google Scholar]
  52. Lagerkvist CJ, Hess S. 2011. A meta-analysis of consumer willingness to pay for farm animal welfare. Eur. Rev. Agric. Econ. 38:155–78 [Google Scholar]
  53. Lapan H, Moschini G. 2009. Quality certification standards in competitive markets: when consumers and producers (dis)agree. Econ. Lett. 104:3144–47 [Google Scholar]
  54. Loureiro ML, Hine S. 2004. Preferences and willingness to pay for GM labeling policies. Food Policy 29:5467–83 [Google Scholar]
  55. Lusk JL, Jamal M, Kurlander L, Roucan M, Taulman L. 2005. A meta-analysis of genetically modified food valuation studies. J. Agric. Resour. Econ. 30:28–44 [Google Scholar]
  56. Marine Stewardship Council 2012. Annual report 2011/12. Rep., Marine Stewardship Council, London. http://www.msc.org/documents/email/msc-annual-report/
  57. Mason CF. 2012. The economics of eco-labeling: theory and empirical implications. Int. Rev. Environ. Resour. Econ. 6:4341–72 [Google Scholar]
  58. Mathios AD. 1998. The importance of nutrition labeling and health claim regulation on product choice: an analysis of the cooking oils market. Agric. Resour. Econ. Rev. 27:159–68 [Google Scholar]
  59. Mathios AD. 2000. The impact of mandatory disclosure laws on product choices: an analysis of the salad dressing market. J. Law Econ. 34:2 43:651–78 [Google Scholar]
  60. Matthews S, Postlewaite A. 1985. Quality testing and disclosure. Rand J. Econ. 16:328–40 [Google Scholar]
  61. Milgrom PR. 1981. Good news and bad news: representation theorems and applications. Bell J. Econ. 12:2380–91 [Google Scholar]
  62. Moon W, Balasubramanian SK, Rimal A. 2011. Health claims and consumers’ behavioral intentions: the case of soy-based food. Food Policy 36:4480–89 [Google Scholar]
  63. Moore M. 2001. Food labeling regulation: a historical and comparative survey. Third Year Pap., Harvard Law Sch. http://nrs.harvard.edu/urn-3:HUL.InstRepos:8965597
  64. Moorman C. 1998. Market-level effects of information: competitive responses and consumer dynamics. J. Mark. Res. 35:82–98 [Google Scholar]
  65. Morris M, Dunne N. 2004. Driving environmental certification: its impact on the furniture and timber products value chain in South Africa. Geoforum 35:2251–66 [Google Scholar]
  66. Moser R, Raffaelli R, Thilmany-McFadden D. 2011. Consumer preferences for fruit and vegetables with credence-based attributes: a review. Int. Food Agribus. Manag. Rev. 14:2121–41 [Google Scholar]
  67. Nesbitt MC. 2006. Not there yet II: environmental concern declines. http://framing-science4.blogspot.com/2006/03/not-there-yet-ii-environmental-concern.html
  68. Newsom D, Bahn V, Cashore B. 2006. Does forest certification matter? An analysis of operation-level changes required during the SmartWood certification process in the United States. For. Policy Econ. 9:3197–208 [Google Scholar]
  69. Noblet CL, Teisl MF. 2014. Labeling policies for sustainable consumption. Handbook of Research on Sustainable Consumption Reisch L, Thøgersen J. London: Edward Elgar In press [Google Scholar]
  70. Ponte S. 2008. Greener than thou: the political economy of fish ecolabeling and its local manifestations in South Africa. World Dev. 36:1159–75 [Google Scholar]
  71. Radas S, Teisl MF, Roe BE. 2008. An open mind wants more: opinion strength and the desire for genetically modified food labeling policy. J. Consum. Aff. 42:3335–61 [Google Scholar]
  72. Roe BE, Levy AS, Derby BM. 1999. The impact of health claims on consumer search and product evaluation outcomes: results from FDA experimental data. J. Public Policy Mark. 18:189–105 [Google Scholar]
  73. Roe BE, Sheldon I. 2007. Credence good labeling: the efficiency and distributional implications of several policy approaches. Am. J. Agric. Econ. 89:41020–33 [Google Scholar]
  74. Roe BE, Teisl MF. 2007. Genetically modified food labeling: the impacts of message and messenger on consumer perceptions of labels and products. Food Policy 32:149–66 [Google Scholar]
  75. Roe BE, Teisl MF, Rong H, Levy AS. 2001. Characteristics of consumer‐preferred labeling policies: experimental evidence from price and environmental disclosure for deregulated electricity services. J. Consum. Aff. 35:11–26 [Google Scholar]
  76. Shavell S. 1994. Acquisition and disclosure of information prior to sale. Rand J. Econ. 2516:20–36 [Google Scholar]
  77. Sheldon I, Roe BE. 2009a. Public vs. private eco-labeling of environmental credence goods: maximizing the gains from international integration. J. Agric. Food Ind. Organ. 7:21–29 [Google Scholar]
  78. Sheldon I, Roe BE. 2009b. Vertical product differentiation and credence goods: mandatory labeling and gains from international integration. EconoQuantum 5:19–33 [Google Scholar]
  79. Sturgis P, Allum N. 2004. Science in society: re-evaluating the deficit model of public attitudes. Public Underst. Sci. 13:155–74 [Google Scholar]
  80. Sutton J. 1991. Sunk Costs and Market Structure: Price Competition, Advertising and the Evolution of Concentration Cambridge, MA: MIT Press [Google Scholar]
  81. Teisl MF. 2003. What we may have is a failure to communicate: labeling environmentally certified forest products. For. Sci. 49:5668–80 [Google Scholar]
  82. Teisl MF. 2007. Introduction: labelling strategies in environmental policy. Labelling Strategies in Environmental Policy Teisel MF. xv–xxxii Burlington, VT: Ashgate [Google Scholar]
  83. Teisl MF, Caswell J. 2003. Information policy and genetically modified food: weighing the benefits and costs. Work. Pap. 2003-1, Resour. Econ., Univ. Mass., Amherst
  84. Teisl MF, Roe BE. 1998. The economics of labeling: an overview of issues for health and environmental disclosure. Agric. Resour. Econ. Rev. 27:140–50 [Google Scholar]
  85. Teisl MF, Roe BE. 2005. Evaluating the factors that impact the effectiveness of eco-labelling programmes. Environment, Information and Consumer Behaviour Krarup S, Russell CS. 65–90 London: Edward Elgar [Google Scholar]
  86. Teisl MF, Roe BE, Hicks RL. 2002. Can eco-labels tune a market? Evidence from dolphin-safe labeling. J. Environ. Econ. Manag. 43:3339–59 [Google Scholar]
  87. Tian H. 2003. Eco-labelling scheme, environmental protection, and protectionism. Can. J. Agric. Econ. 36:3608–33 [Google Scholar]
  88. Tietenberg T. 1998. Disclosure strategies for pollution control. Environ. Resour. Econ. 11:3–4587–602 [Google Scholar]
  89. Veyssiere L, Giannakas K. 2006. Strategic labeling and trade of GMOs. J. Agric. Food Ind. Organ. 4:11–40 [Google Scholar]
  90. Warner KD. 2012. Understanding public risk perception for the use of beneficial microorganisms. Beneficial Microorganisms in Agriculture, Food and the Environment: Safety Assessment and Regulation Sundh I, Wilcks A, Goettel MS. 322–34 Wallingford, UK: CABI [Google Scholar]
  91. Zago AM, Pick D. 2004. Labeling policies in food markets: private incentives, public intervention, and welfare effects. J. Agric. Resour. Econ. 29:150–65 [Google Scholar]
  92. Zilberman D, Kaplan S, Kim E, Waterfield G. 2014. Lessons from the California labeling proposition on the state of crop biotechnology. Handbook on Agriculture, Biotechnology and Development Smyth SJ, Phillips PWB, Castle D. 538–49 London: Edward Elgar [Google Scholar]
/content/journals/10.1146/annurev-resource-100913-012439
Loading
/content/journals/10.1146/annurev-resource-100913-012439
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error