ECO-LABELLING CONTENTS Paragraphs Page I. INTRODUCTION ........................................... 1 - 7 2 - 3 II. DEFINITION OF ECO-LABEL ............................... 8 - 9 3 III. DISCUSSION OF THE EFFICIENCY VS EQUITY ................ 10 - 15 4 - 5 DILEMMA IN THE CONTEXT OF ECO-LABELLING IV. EVIDENCE FROM LABELLING PROGRAMMES ............. 16 - 27 5 - 7 A. Effects on consumers .......................... 17 - 24 5 - 7 B. Effects on producers ............................. 25 - 27 7 V. EXPECTED EFFECTS OF ECO-LABELLING ON .............. 28 - 39 8 - 10 CONSUMER PURCHASING DECISIONS AND PRODUCER COMPETITIVENESS VI. THE EFFECT OF ECO-LABELLING ON .................... 40 - 46 10 - 11 DEVELOPING COUNTRY EXPORTERS VII. THE EFFICIENT DESIGN OF ECO-LABEL ................ 47 - 52 12 - 13 PROGRAMMES VIII. SUGGESTION FOR FUTURE RESEARCH ............. 53 - 55 13 - 14 Bibliography 14 - 16 I. INTRODUCTION 1. This paper reviews the empirical and theoretical literature on labelling. It studies the effect that labelling programs have had on consumer and producer decisions in several industries and discusses whether the same effects can be expected from eco-labelling. The study is primarily addressed to those aspects of eco-labelling that may affect the level and pattern of trade between developed and developing countries. 2. The paper has two objectives. The first is to report findings from the label literature that can be useful in the design of eco-labelling programs. It attempts to identify those factors that can improve the transfer of information to consumers without imposing large costs on producers. For example, the paper cites proposals from international organizations and national governments for the coordination of national eco-labelling programs 1/. Such proposals aim to provide the information that consumers from importing countries demand minimizing, at the same time, the costs incurred by producers that export to more than one country (see UNCTAD 1994a and 1994b for the current state of all these initiatives) . 3. The second objective of this survey is to facilitate a better understanding of the distinction between the efficiency gains and equity implications of eco-labelling. An eco-labelling program generates efficiency gains in the exchange of goods when it increases the information available to consumers about alternative goods at a cost they are willing to pay. An eco- labelling program has equity implications if it imposes higher costs on some producers than on others. The equity implications of eco-labelling with which this paper will be concerned are the potential market share losses of exporters from developing countries (DGs) in industries affected by an eco- label regulation. 4. The trade-off between the efficiency and equity implications of eco- labelling is at the core of some international agency and national government concerns. These institutions fear that developed countries (DCs) may try to protect their markets from DG products by establishing criteria on the environmental information on labels that DG producers (especially, small and medium producers) might find difficult to meet. 5. The study finds that label programs have affected the pattern of consumption and production of the industries that have adopted them. Nevertheless, the effect of these programs has not been large and has been unequally distributed across consumers and producers even in the most information-sensitive industries (like the food and health industries). As a result, the paper suggests that the effect of eco-labels on DG exports is likely to be small as well, mainly because a large market niche will exist for products without an eco-mark that compete primarily on the basis of price. 6. Thus, one conclusion of the study is that eco-labelling programs should be designed to optimize the information gains of the groups that find value in obtaining or disclosing voluntary information. In most cases, these groups are neither consumers nor producers from DGs and, thus, the latter will not be affected by these programs in a major way. 7. Section 2 defines eco-labelling. Section 3 discusses the efficiency and equity implications of eco-labelling programs. Section 4 reviews the literature on labelling, and section 5 discusses whether the conclusions from section 4 can be extrapolated to the case of eco-labelling. Section 6 discusses the effect that eco-labelling may have on the imports from DGs. Section 7 provides some suggestions for an efficient design of eco-labels. Finally, section 8 suggests directions for future research. II. DEFINITION OF ECO-LABEL 8. An eco-label is a voluntary trademark that is awarded to products deemed to be less harmful to the environment than other products within the same category. 9. There are two important implications of this definition: (a) an eco-label requires that a voluntary application be made by the producer. Being a voluntary decision, a producer will apply for an eco-label only if he/she can extract some extra surplus (or avoid a loss of surplus) from it. If consumers' reaction to the new information is expected to be small or if the cost of providing that information is large, most producers will keep their competitive advantage without participating in the program and will not have to incur any labelling cost. (b) an eco-label program needs a third party certification to define the levels of environmental harm that will differentiate products within the same category. The third party certification defines, first, the category groups and, second, the relevant degree of environmental harm. Because any national government or national agency can act as a third party certifier and different countries may select different product categories and levels of environmental harm, there is concern that the proliferation of national programs, especially those based on life cycle analysis (LCA), will have a negative effect on international trade. National governments and international institutions lack the instruments to intervene in this matter because, being a voluntary decision on the part of producers, eco-labels are not subject to the WTO regulations that ban trade-restricting practices 2/. III. DISCUSSION OF THE EFFICIENCY VS EQUITY DILEMMA IN THE CONTEXT OF ECO-LABELLING 10. A labelling program increases the efficiency of an exchange when the gains to the recipients of information (consumers) outweigh the cost of providing that information 3/. 11. To study the efficiency of an eco-labelling program it may be useful to clarify the type of costs and benefits that should be imputed to these programs. 12. In fact, producers can react to an eco-labelling program in three different ways, each of which is associated with different costs and benefits. First, all producers in the industry may simply ignore the program on the assumption that consumers do not value that information. The costs and benefits from this program will be nil. Second, some producers, those that already meet the standards to get the eco-label, may participate in the program (earn the eco-mark) while the rest of the industry, those that do not meet the standards, will not participate in the program. Only the former will face the direct cost from complying with the new norm (studying the norm, analyzing the product characteristics and elaborating and applying for a new label 4/). All consumers will benefit from the differentiation of products which seemed identical before the creation of the program. Third, some (or all) producers who want to participate in the program may need to change their product formulation to get an appropriate eco-label. These producers incur two types of costs: the direct cost from elaborating and applying for a new label and the cost from reformulating and producing the new product. The latter is a strategic and voluntary reaction on the part of producers rather than a cost imposed on them by the labelling standard. If one imputes this investment expenditure as a cost of the labelling program one should also impute as a benefit of the program the increase in consumer satisfaction (and reduction in environmental damage) from the new products. 13. It should also be noted that, at the international level, one has to impute to the program a multiple of the cost that a exporter incurs to comply with different national programs. As a general rule, any efforts to reduce this multiplication of costs would increase the efficiency of the programs as long as they do not reduce substantially the information relevant for consumers. For this reason, the International Organization for Standardization (ISO) is developing guidelines to reduce the trade-restricting implications of having too many different eco-labeling programs. See UNCTAD (1994a) for a description of other international efforts in this direction. 14. It will always be the case that some producers will be more affected than others by the existence of labelling requirements. The concern about which producer (or which country) is more affected is a problem of equity rather than economic efficiency. It is a political decision to establish whether a more equitable program is preferred to a, possibly, more efficient one. 15. This paper will try to report findings in the labelling literature that could help policy makers compare the potential efficiency gains of eco- labelling programs with their potential costs in equity terms 5/. IV. EVIDENCE FROM LABELLING PROGRAMMES 16. This section reviews the literature on labelling with the objective of drawing some conclusions that can be useful to the design of eco-labelling programs. Most of the papers in this literature refer to the food industry in the United States. A. Effects on consumers 17. The effect of label information on consumer behavior depends on (a) the amount of label information actually perceived by consumers and (b) the consumer's willingness to pay the premium associated with the label, if one exists. 1. Perception of information 18. The research reviewed indicates that consumers do demand label information but that they actually perceive a low percentage of the information displayed in existing labels. Muller (1985), Robertson and Marshall (1987), Feldman and Erickson (1988), Brucks, Mitchell and Staelin (1984) and Klein and Greyser (1989) find that information in food labels is difficult to understand and that a large proportion of their experimental groups did not perceive the intended information. Levy et al. (1985) and Burton and Biswas (1993) point out the importance of displaying complete information but in simple statements that are easy to read. See also Brown, Kelley and Lee (1991) for a review of the effect of labels on consumer perception. 19. Caswell and Padberg (1992) report that different surveys show that consumers do not have time to process the information on the labels they consume at the moment of purchase in the store. Nevertheless, Moore and Lehman (1980) argue that most of the information on labels may be acquired during consumption rather than shopping and that this information may affect future purchases. 20. Some researchers have linked the amount of labelling information perceived by consumers to the level of information that consumers had before purchasing the product. Ippolito and Mathios (1990) show how increasing the level of information can affect the success of a labelling program. They study the effect of the advertising campaign on the health effect of high fiber cereals in the mid 1980s. They find that the promotion of these products enhanced the amount of information transmitted from labels to groups that had low levels of health information. Consequently, the advertising campaign combined with the labelling information reduced the disparity between the levels of consumption of these groups and those that were better informed before the advertising campaign. Beltramini (1988) finds that those that felt more strongly about the harmful effect of smoking perceived the warning label in cigarettes as more relevant and believable. Jensen and Kesavan (1993) find that the advertising campaign on the calcium content of diary products affected consumer attitudes and awareness of the products labelled as such. 21. It has been shown also that the level of perceived information depends on the consumer ability to process the information in the labels. Thorelli and Engledow (1980) identify information seekers as high-income, educated and mostly professional or managerial people. They argue that they may represent about 10 to 20 percent of consumers. Ippolito and Mathios (1990) find that the groups with the highest increase in high fiber cereal consumption after an advertising and labelling programs were those with higher capacity to process information (better educated). Schucken et al. (1983) found that, after the mandatory warning of saccharine usage in soft drinks, only the most educated households or households with children reduced the consumption level of these products. 2. Purchasing decisions 22. As was indicated in the introduction to this section, the second factor that affects the impact of a new label on consumers is the willingness of consumers to pay a premium for the new labelled products. Although it is difficult to measure directly, this section reviews some studies that show that only a relatively small percentage of consumers are willing to pay higher prices in exchange for more information or for different products. 23. Zarkin and Anderson (1992) report that 58% of the consumers they surveyed consider the nutrition content of food, as perceived from food labels, to be an important factor when shopping. Nevertheless, price and taste were important also for a larger percentage of consumers (64% and 65% respectively). McNeill and Wilkie (1979) found that energy labels did communicate useful information but did not change purchase decisions, Dyer and Maronick (1988) review the literature on appliance energy labels and conclude that this information had only marginal purchasing effects. Levy et al. (1985) found that when products were displayed on shelves with markers that contained nutrition information the consumption of these products increased with respect to those without that information, but the difference in consumption between both types of products was not large. Brown and Schrader (1990) and Capps and Schmitz (1990) found quantitative evidence that suggests that health and nutrition information has affected the consumption patterns of shell eggs and meat products. Ippolito and Mathios (1990) find that only the most health conscious groups and those with higher education increased significantly their consumption of high fiber cereal. 24. The main conclusion from this subsection is that some consumers accept price increases in exchange for information about product quality but that this behavior is limited to certain groups of consumers and products. B. Effects on producers 25. Some authors argue that the most important benefit from labelling is not the direct effect on the level of consumer information but the indirect effect on the average quality of the supply of products (Caswell and Padberg 1992, Padberg 1992). There is evidence that, after a compulsory label program is implemented, some producers change the composition of their products to prevent a negative reaction from their customers. This is not a generalized reaction among producers, though. 26. Ippolito and Mathios (1990) found a small but significant increment in the average levels of "other healthy" components in high fiber ready-to-eat cereals after health claims on food were allowed. Nevertheless, they did not find any significant change in the composition of cereals that were not high fiber and, thus, were not part of the information campaign. French and Neighbors (1991) report that many soft drink producers started using an alternative artificial sweetener when a warning for the use of saccharin was required. They also report similar reactions from producers that used sulfite before a disclosure requirement was in place. 27. An interesting characteristic of labelling programs is that they have been particularly effective in oligopolistic industries 6/. This is because producers in these industries can appropriate the benefits from advertising campaigns that make consumers aware of the information on the label (see Ippolito and Mathios 1990 for the ready-to-eat cereal industry). Caswell (1992) reports that, in a study developed in 1991, almost half of food products had no label information. The reason for providing a label had more to do with whether the competitors did it than with the type of product offered. V. EXPECTED EFFECT OF ECO-LABELLING ON CONSUMER PURCHASING DECISIONS AND PRODUCER COMPETITIVENESS 28. This section discusses the differences and similarities between the industries studied in our review and the industries which may adopt an eco- labelling program. Based on this comparison, the section provides some predictions on the effect that eco-labels may have on consumer and producer decisions. 29. Our research indicates that five factors seem to be important for the success of a labelling program: (a) previous consumer awareness on the type of information contained in the label; (b) third party certification; (c) market structure; (d) consumer willingness to pay a premium for labeled products; (e) inexpensive and clear label format 30. Factors (a)-(d) are product-specific while factor (e) affects every product in a similar way. This section studies how the first four factors may affect the industries targeted by eco-labelling programs. Section VII deals with factor (e) and will provide practical suggestions for the design of labels and labelling programs. 31. The environmental content of goods can be considered a credence and public good that is produced in industries with very different structures. Let us analyze these three characteristics one at a time. 32. Credence goods are those whose characteristics can not be observed by the consumer directly even after consumption. An example of a credence good is "healthy" food. The literature on "healthy food" labelling indicates that consumer awareness programs and third party certification may be necessary if consumers are to perceive and believe the claims on the labels. An example of third party certification combined with an advertising campaign is studied by Ippolito and Mathios (1990). They consider that the cooperation of the National Cancer Institute with the Kellogg's promotion of high fiber cereal was essential for its success 7/. 33. In eco-labelling programs the credibility problem can be eliminated with the participation of governmental or private agencies as third party certification bodies. Promotional campaigns of the environmental qualities of a product can be carried out by governments, international organizations and NGOs. This will require a cost-benefit analysis where the campaign cost is to be balanced with the social benefit derived from the increase in consumer information. 34. A more difficult but related issue is to know whether producers will have incentives to invest private resources to campaign for the environmental qualities of their products. This can depend on the structure of the industry that produces those goods. The literature already reviewed in this survey indicates that oligopolistic producers have high incentives to differentiate their products while in competitive industries the efforts of a single producer will be too small to be perceived by consumers. Thus, one would expect that producers will be more eager to adopt an eco-label in, for example, the chemical or paper industries than in the clothing or footwear industries. 35. Public goods are those for which the consumption by one person does not exclude the consumption by another. The cost of providing the good to an extra consumer is negligible. Examples of such goods are, among many others, the national defense system, public parks and public infrastructure. Markets can not provide an efficient allocation of these goods because consumers may not be as willing to pay for a good that other consumers can enjoy freely ("free riding"). Governments usually coordinate the payments of large groups of consumers through taxation so that each of them pays a portion of the cost of the good. 36. Although the goods that have been previously investigated in this review are not public goods we can still use the conclusions from that literature as a reference to shed light on the potential implications of eco-labelling programs. It makes sense to assume that the average consumer reaction to an increase in the information on private goods can be an upper limit of the expected average consumer reaction to an increase in the information on public goods. This statement assumes the existence of "free riding" and can be justified as follows. As a result of an increase in information about a private product, consumers will increase their consumption of the product if they perceive they can get a direct benefit from it (for example, consumption of healthy food). However, after new information about the impact of a marketed good on the quality of a public good (such as the quality of the global environmental commons) is released, consumers may not perceive a direct gain from the consumption (or reduction of consumption) of that good unless other consumers will react in the same way (which will not happen if free riding exists). For example, reducing the level of CO2 emissions by a single consumer will not result in a tangible reduction of air pollution. Thus, it is reasonable to assume that given an increase of environmental information on a consumption good, consumers will react more if significant improvement in environmental quality does not depend on the behavior of others. 37. There does not seem to be any comprehensive empirical research which could help to determine the extent to which the free riding problem is important for environmentally friendly goods. Nevertheless, there is some anecdotal evidence which supports the hypothesis that there is a potential demand for green products (even those that include a price premium) but that this potential demand is still small. For example, The Economist (1993) reports interest in the furniture industry for wood produced with sustainable management techniques; nevertheless, East Asian Report (1994) indicates that environmental concerns may affect the furniture industry; Marketing News (1993) reports the potential but small market for "green clothing"; Chemical Week (1993) reports the market gains achieved by some products using "green chemicals" (for example, the article documents the fact that the market for water-based paints has increased from a 5-7% in 1978 to a 40-50% in 1993); the Swedish Standard Institution reports that the market share of detergents with an eco-label in Sweden increased from 12% in 1992 to 80% in 1995. 38. This evidence shows that some products with eco-labels achieve high market shares in a relatively short period of time. Given the small number of products for which eco-labelling has had an important impact until now, it is difficult to generalize about consumer behavior (especially to what extent free riding exists in the consumption of eco-friendly products). However, even from this limited evidence, two observations might be made which could have relevance for other markets as well. First, eco-labels are more likely to spread rapidly in oligopolistic markets. Second, if meeting the environmental requirements to obtain an eco-label is not "too costly", producers will adopt it. This will have the implication that the eco-label will discriminate against the "worst" producers instead of creating a market niche for the "best" producers 8/. 39. In summary, this section leads us to the following conclusions. First, there may be a potential and growing demand for green products. Second, this potential demand will not materialize in the form of actual purchases without public information campaigns and the active role of third-party certifying bodies. Third, there is evidence to assume that a large market for environmentally "unfriendly" products will remain available for products without an eco-label. This market will be larger the larger is the premium attached to the environmental quality of the products (the more costly is to meet the environmental requirement). Finally, eco-labelling schemes which discriminate against the "worst" producers may be more effective in achieving short-term gains in environmental improvement than those which create a market niche for the "best" producers. VI. THE EFFECT OF ECO-LABELLING ON DEVELOPING COUNTRY EXPORTERS 40. This section will focus on some of the equity consequences of eco- labelling programs, in particular, on the effect that eco-labelling programs can have on DG exports. Their impacts may differ depending upon whether these programs consider the impacts of products during consumption and disposal or whether they consider as well impacts arising from production and process methods (PPMs), as in the case of life-cycle analysis. 41. UNCTAD and UNDP have sponsored several surveys with the purpose of finding which are the main concerns of DG producers facing environmentally related regulations (see UNCTAD 1994c for a preliminary summary of the results of these studies). 42. The main conclusion from these studies is that most DG exporters do not perceive themselves to be affected by eco-labelling programs. In Colombia, China and Poland most respondents claim not to be directly affected by competing firms that provide eco-information, although they show interest in applying for these labels in the future. For the respondents from Turkey, Zimbabwe and the Philippine eco-labels were not an issue of concern. 43. However, UNCTAD 1994c refers to other studies that have studied the impact of the European Union eco-labelling program, which is based on life- cycle analysis, on small producers from Brazil, India, Colombia, Thailand and Turkey. They report that if a small producer of footwear in India wanted to display the EU label, the cost of test requirements alone could amount to an increase of 50% of the factory gate price of the product. They also report that even for large producers compliance with the EU standard would increase their fixed capital cost by up to 50%. 44. Most exports of manufactured products from developing countries target market niches sensitive to the price of the product (see UNCTAD 1994a). The main conclusion from previous sections is that eco-labelling programs may affect market niches sensitive to product differentiation but that there will always be price sensitive market niches for which the environmental impact of a product is irrelevant. In consequence, one could expect that most of the exporters of manufactures from DGs will not have to incur the costs of either relabelling or changing the design of their products. 45. Would DG producers who intend to upgrade their exports by differentiating their products and targeting more profitable market niches be adversely affected by eco-labelling? This is possible. However, the market discipline only allows this strategic behavior to companies that can invest enough resources to make their differentiation strategy perceivable to consumers. These are typically large and mature companies which, in principle, should not seek governmental or international protection. In other words, firms that do not need to compete primarily in terms of price should not need the protection of governmental or international agencies to compete in terms of quality. 46. The most important conclusion of this section is that eco-labelling programs should be designed to provide the appropriate amount of information to consumers at a minimum cost. However, their effects on the DGs exports are likely to be small. Nevertheless, some policy analysts advocate that voluntary eco-labelling programs, especially those which are based on life- cycle analysis, allow differentiated standards for DG exporters. Pursuing this approach could reduce the information gains of labelling programs without necessarily having a significant impact on DG exporters. VII. THE EFFICIENT DESIGN OF ECO-LABEL PROGRAMMES 47. The analysis in the previous sections suggests that, at least in the short and medium-run, DG exports are unlikely to be affected greatly by voluntary eco-labelling schemes. This section summarizes other findings from the paper that would improve the information content of eco-labels and would decrease the cost of providing it to those who want to participate in these programs. 48. From our review we can draw two types of suggestions for the design of more efficient eco-labelling programs. The first group comprises practical suggestions for the actual design of an eco-labelling program, the second group of suggestions refers to the coordination of national eco-labelling programs. 49. The practical findings for the design of eco-labels can be summarized in the following points: - Consumers' response to the information contained in a label is larger when: (a) they are previously aware of the relevance of the information contained in the label; (b) the information is certified by a recognized third party; (c) the information is complete but can be summarized in simple statements that are easy to read. - Producers' reaction to a label program is less expensive when 9/: (a) the compliance period of the regulation is at least 12 months, which gives enough time to complete the relabelling process 10/; (b) the regulation is flexible (focused in discriminating against the most polluting producers rather than in creating a market niche for the cleanest producers); (c) firms (especially small and medium firms) can operate through business associations that provide services (legal information, laboratories to analyze product contents, printing facilities, etc.) that take advantage of economies of scale. 50. At the international level, the coordination of different national eco- labelling programs could enhance their efficiency by reducing the cost of exporters that target several markets. This problem has been well documented by UNCTAD (1994a and 1994b). These studies propose five general principles for the design of such programs. These principles are the following: (a) transparency in the design of the programs, (b) mutual recognition, (c) internationally agreed guidelines, (d) technical assistance and (e) flexibility in the recognition of ways to achieve eco-objectives (equivalencies). 51. Except for the principle of mutual recognition, which requires (total or partial) recognition of the eco-label standard of the exporting country by the importing country, these principles will decrease the cost of exporting a good (facilitating international competition) without affecting substantially the transmission of relevant information to domestic consumers. International acceptance of these four principles will enhance the efficiency of current eco-label programs. 52. It is not clear whether the principle of mutual recognition would improve these programs on balance: it may improve them in aspects related to local environmental problems (for which most of the eco-labelling programs are designed) but it would probably have a negative effect on global environmental problems. This principle is based on the idea that the environmental damage from producing goods is lower in countries with high absorptive capacity than in countries with low absorptive capacity. As a consequence, the importing country's label should distinguish the "cleanest" producers of the exporting country disregarding whether the absolute level of "polluting emissions" in the exporting country does or does not meet the eco-label requirements of the importing country. This argument misses two important points, though. First, environmental standards depend not only on the absorptive capacities of an economy but also on the preferences of consumers for "cleaner" products (which may be different for different countries). Second, for some global environmental problems local absorptive capacity is not relevant. In other words, for environmental damage generated in countries that may have an effect on other countries the principle of mutual recognition may not provide the appropriate information for consumers to make the best purchasing choices. VIII. SUGGESTION FOR FUTURE RESEARCH 53. Further research is needed on the effects that currently active eco- labelling programs might have on DG exports. The findings reported in this paper suggest that the demand for products without an eco-mark will still be significant. However, this result relies on studies of label programs designed for other than environmental purposes and in the assumption that "free riding" in the consumption of environmentally friendly goods may exist. There appear to be as yet no available quantitative evidence to directly support or refute this hypothesis. 54. The results presented here also suggest the need for further research to measure how consumers react to recently introduced eco-label programs. 55. If, as the conclusions from this study suggest, a large portion of consumers in certain markets are likely to be indifferent to the environmental information on labels, concern about the effect of eco-labelling on DG exporters should ease. This also implies, however, that the effectiveness of eco-labelling schemes in achieving environmental goals in those markets will be limited. The environmental effect of these schemes will depend, first, on their ability to provide information that consumers can perceive and believe and, second, on the share of total consumption of those consumers who are willing to pay the premium associated with the increase in information. BIBLIOGRAPHY 1. Beltramini, R.F., 1988, Perceived believability of warning label information presented in cigarette advertising, Journal of Advertising, 17 (January). 2. Brown V., C.A. Kelley and M.-T. Lee, 1991, The state of the art in labelling research revisited: developments in labelling research 1978- 1990, American Marketing Association, Summer. 3. Brown D.J. and L.F. Schrader, 1990, Cholesterol information and shell egg consumption, American Journal of Agricultural Economics, 74.2. 4. Brucks M., A.A. Mitchell and R. Staelin, 1986, The effect of nutritional information disclosure in advertising: an information processing approach, Journal of Public Policy and Marketing, 2. 5. Burton S. and A. 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Maronick, 1988, An evaluation of consumer awareness and use of energy labels in the purchase of major appliances: a longitudinal analysis, Journal of Public Policy and Marketing, 7. 12. East Asian Report, 1994, Protection vs profits in tropical timber, May. 13. Feldman L.P. and L.W. Erickson, 1988, Labelling as an element in food marketing strategy: the United States experiment, Food Marketing, 3 (February). 14. French and Neighbors, 1991, A model of firm costs of compliance with food label regulations, Economics of Food, Caswell J.A. Ed, Elvesier Science Publishing. 15. Ippolito P.M. and A.D. Mathios, 1990, Information advertising and health choices: a study of the cereal market, The Rand Journal of Economics, 21.3. 16. Jensen H.H. and T. Kesavan, 1993, Sources of information consumers attitudes on nutrition and consumption of diary products, The Journal of Consumer Affairs, winter. 17. Klein N. and S. A. Greyser, 1989, The giant effort to inform consumers, Harvard Business school: case study, 9. 18. Laric M.V. and D. Sarel, 1982, Consumer misperceptions and usage of third party certification markets, 1972 and 1980: did public policy have an impact?, Journal of Marketing, 45 (July). 19. Levy A.S., O. Mathews, M. Stephenson, J.E. Tenney, R.E. Schuker, 1985, The impact of nutrition information on food purchases, Journal of Public Policy and Marketing, 4. 20. Marketing News, 1993, Makers of organic clothes find mainstream outlets, March 1st. 21. McNeill D.L. and W.L. Wilkie, 1979, Public policy and consumer information: impact of the new energy labels, Journal of Consumer Research, 6 (June). 22. Moore, W.L., and D. R. Lehman, 1980, Individual Differences in Search Behavior for a Nondurable, Journal of Consumer Research, 7,3. 23. Muller T.E., 1985, Structural Information factors which stimulate the use of nutrition information: a field experiment, Journal of Marketing Research, 22 (May). 24. Padberg D. I., 1992, Nutritional labelling as a policy instrument, American Journal of Agricultural Economics, December. 25. Robertson K. M. and R. Marshall, 1987, Amount of label information effects on perceived product quality, International Journal of Advertising, 6 (Summer). 26. Schucken R.E., R.C. Stokes, M.L. Stewart and , D.P. Henderson, 1983, The impact of saccharin warning labels on sales of diet soft drinks in supermarkets, Journal of Public Policy and Marketing, 2. 27. The Economist, 1993, Trade in tropical timber: for the chop, January 30. 28. Thorelli H.B. and J.L. Engledow, 1980, Information Seekers and information systems: a policy perspective, Journal of Marketing 44.2. 29. UNCTAD, 1994a, Eco-labelling and marketing opportunities for environmentally friendly goods, Report to the Trade and Development Board. 30. UNCTAD, 1994b, Report on the Workshop on Eco-labelling and International Trade. 31. UNCTAD, 1994c, Reconciliation of Environmental and Trade Policies: Synthesis of Country Studies. 32. Wilde, L.L., 1980, The economics of consumer information acquisition, Journal of Business, 53.3. 33. Zarkin G.A. and D.W. Anderson, 1992, Consumer and producer responses to nutrition label changes, American Journal of Agricultural Economics, 74.5. Notes 1/ More than twenty countries have already adopted an eco-labeling program and the number has grown at an increasing rate during recent years (see UNCTAD 1994a). 2/ To be more precise, the GATT-Agreement on Technical Barriers to Trade (which has a limited number of signatories) requests that, in the case of voluntary standards, central government agencies should comply with the Code of Good Practice. This code establishes rules to facilitate the publicity of national governments initiatives. Nevertheless, until now no eco-labeling scheme has been communicated to the GATT secretariat. 3/ Depending on the market structure and demand elasticity of the product this cost can either reduce producer surplus or be transmitted, partially or wholly, to consumers through price increases. 4/ Some programs include an annual fee which pays for the certification service. The European Union eco-labeling program, for example, requires that companies pay .15 per cent of their annual European turnover. 5/ An example of an eco-labeling policy that may have improved efficiency while taking into account the equity problem can be found in the Austrian legislation requiring labels on tropical wood. The Austrian parliament tried to offset the damage that this legislation could have on tropical wood exporters by providing a $17m "rainforest fund" to finance environmentally sound forestry in those countries (The Economist 1993). The trade-off between short-run efficiency and short-run equity in this example is as follows. If Austrian consumers derived satisfaction from protecting the tropical forests (which may not be clear to everybody) the information on the labels would represent a benefit to them (this is an increase in the efficiency of the wood exchange) and this benefit would make them more willing to transfer income to tropical wood-producer countries. 6/ Oligopolistic industries are those in which only a few producers compete to sell a product. An important characteristic of these industries is that, given the large size of the producers, consumers can easily identify the company that provides a particular good or service. 7/ Laric and Sarel (1982) examines consumer perception of third party certifications. 8/ This observation is based on the experience of the Nordic Swan Eco- labelling Scheme which was initially boycotted by environmental groups claiming it was too light on environmental requirements. These groups rejoined the scheme when its popularity was proven by the increase in the market share of eco-labelled products (see DPCSD, 1995). 9/ See French and Neighbors 1991 for a discussion of producer reactions to label regulations. 10/ French and Neighbors 1991 indicate that a firm facing a label program passes through the following stages: development of a strategic response, elaboration of product tests, printing of new labels and management of old label inventories.
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Date last posted: 3 December 1999 10:27:35