Consumer response to environmental labeling

This dissertation presents an exploratory study of the consumer response to environmental labeling (ecolabeling). Ecolabeling is an attempt by firms to inform consumers of the environmental "friendliness" of a product. Thus, ecolabeling is an example of private provision of a public good. Producers have an incentive to provide a public good if a competitive advantage exists. Firms attempt to price an ecolabeled product in order to capture the positive consumer surplus which is associated with perceived environmental quality improvements and which some consumers are willing to pay. Therefore understanding how consumers behave when faced with a purchase of a product with both private and public good attributes is crucial to this area of research.;In the following dissertation, a market experiment is implemented in order to capture both observed market data and contingent referendum market data. The data are used to estimate mean willingness to pay (WTP) for a representative ecolabeled product. The observed purchase of an ecolabeled product over a nearly identical alternative reveals a preference for the environmental attribute of the product. The observed market price reflects the minimum WTP for the environmental benefit. It is predicted that individuals with experience and knowledge of environmental issues are willing to pay more for the ecolabeled product than the stated market price. However, because of the public good and information problems associated with the ecolabeled product, incentives are to free ride and strategically understate true WTP. Despite these incentives, mean WTP values for the environmental attribute appear high.;Discrete choice regression models, derived from standard consumer theory, are used to analyze observed choice and contingent valuation referendum data in order to isolate the mean WTP for the environmental attribute. The results better define the market for ecolabeling and suggest that an information policy regarding the benefits of some ecolabeled products proves to be beneficial because consumers are found to behave in a rational and predicted way.