Product differentiation and the provision of information on the environmental attributes of private products

Numerous governments, regulatory bodies and independent organizations have recently implemented various programs designed to disseminate information about the environmental “attributes” of companies or products. These programs run the gamut from highly-technical, plant-level data about toxic releases to simplistic labels meant to symbolize a particular company's or product's environmental “worthiness.” The economics literature contains increasing empirical evidence that these programs may engender emission reductions, thereby lending credence to the growing number of proponents touting the desirability and efficacy of information programs as a supplement, or even alternative, to traditional forms of environmental regulation.; However, there has been little attention paid to the actual structural mechanisms by which the provision of information could influence polluter behavior. For instance, although there is evidence that individual consumers are willing to incorporate environmental concerns into their consumption decisions, there has been little economic analysis of this behavior or its effect on firms. This dissertation provides a framework for conducting this analysis. More specifically, the dissertation describes and then employs both a horizontal and a vertical product differentiation model to examine how the provision of information concerning a product attribute associated with a negative environmental externality might affect the behavior of firms producing the good.; These models are used to examine two different contests. The first is characterized by a program that provides detailed information to consumers on the relative of environmental quality or performance of the products they are consuming. In this instance, the conditions under which the introduction of the program would improve social welfare are derived. In the second context, the models are used to derive the social welfare maximizing standard for an environmental certification or “ecolabeling” program. In these types of programs, firms have to meet the standard in order to acquire the certification or label and the only information provided to consumers is whether or not a particular firm has acquired the label. Finally, the dissertation provides some guidance as to how this framework can be utilized in the empirical analysis of these issues.