Information and markets for credence goods

The well-heralded efficiency results of standard neoclassical economic theory rely upon the assumption that market participants have perfect information about the quality characteristics of products. This research looks at the implications of imperfect information in a market for credence goods. Since the environmental quality embodied in a good is difficult for a consumer to assess before, during, or even after use of the good, green goods fit the definition of a credence good. Recent environmental policy has attempted to use information provision programs to overcome this informational asymmetry and to help support a market for high quality green goods.;My dissertation addresses different questions that revolve around the use of information in a market for credence goods. The first chapter shows that increasing consumer awareness of the environmental attributes of a good can (but will not always) encourage firms to produce goods with higher levels of environmental quality. The effect on social welfare can be ambiguous as information provision results in excess product differentiation. This research also makes an important contribution by examining how information affects the use of other policy tools like standards and taxes.;The second chapter of my dissertation is an empirical examination of the Nordic Swan eco-labeling program. Using market data of household purchases of toilet paper and paper towels, I find that consumption of eco-labeled products follows a two stage process: consumers decide whether to buy eco-labeled products and then decide how much to buy. I find that socio-economic characteristics are important in determining consumption of eco-labeled products and several socio-economic characteristics have a differential impact across the two stages.;The final chapter in my dissertation considers how imperfect information about credence goods impacts consumer welfare. Since consumers do not notice a change in quality of a credence good, a non-optimal consumption choice is made which impacts consumer welfare. I develop a framework to account for the welfare effects of consumer uncertainty and imperfect information of changes in product quality of credence goods. In doing so, the research also provides a measure for the value of information.