A Review of Eco-labels and their Economic Impact

Abstract

In many countries, various eco-labels have emerged for informing consumers about the environmental impact of the offered products. Using recent advances in the empirical and theoretical literature, this review questions the efficiency of eco-labeling. We combine a literature review with discussions of empirical examples. We underline the limitations of eco-labels for signaling credible information to consumers. In particular, both the complexity and the proliferation of eco-labels are likely to hamper their efficiency in guiding consumers. From a regulatory perspective, several studies show that eco-labels are useful, but they cannot be considered a panacea for improving environmental quality. Indeed, it is often socially optimal to combine eco-labels with other regulatory tools such as standards banning polluting products and tax/subsidy mechanisms depending on the environmental quality. The conclusion suggests research priorities for tackling unanswered questions.