Prescriptive labeling: impacts on market and environmental issues
Résumé
Prescriptive labels such as traffic lights on food products or energy efficiency classes on electrical
appliance modify firms’ decisions and thus a labelling policy may not reach its expected outcome.
Using a vertical differentiation model where three firms compete in a market, we examine how
changes in consumers’ quality perception induced by a prescriptive labelling shift market shares,
prices and finally environmental benefits. We find that in the long-run, a rewarding labelling strategy
leads to higher environmental benefits that a penalising one. Furthermore, a mildly restrictive
rewarding strategy generates the highest environmental gains.