Tuesday 11
Environmental Economics
Diane Aubert
› 9:30 - 10:00 (30min)
› 406
Minimum Quality Standards and Compulsory Labeling when Environmental Quality is not Observable
Jan Vosswinkel  1@  , Laura Birg  2@  
1 : NGU | Nuertingen-Geislingen University
2 : University of Göttingen

This paper studies the effect of a minimum quality standard, a compulsory labeling scheme, and the combination of both instruments in a vertical differentiation model when not all quality dimensions can be observed by consumers. Both a minimum quality standard for the non-observable quality dimension and a labeling scheme that informs consumers about the non-observable quality dimension increase prices, and have no effect on the observable quality dimension and market shares. The combination of a minimum standard and a labeling scheme increases both the unobservable and the observable quality dimension, increases prices, and shifts market shares from the high quality firm to the low-quality firm. Social welfare is higher under the combination of both instruments than under no regulation, the minimum quality standard or labeling applied as only instrument.

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