Eco-Labels and Easy Riding

This paper evaluates the effects of national and international eco-labelling programmes. It develops a model of consumer choice, where the production of an internationally traded commodity reduces the stock of a public ecological resource. In this model, eco-labels will result in damage levels that exceed the socially efficient level. It is shown that when more countries adopt an existing eco-label, consumers substitute away from the eco-labeled brands. Consequently, in an interior equilibrium, the world level of environmental damage is invariant to the number of countries that have the eco-labelling policy. Evidence is presented in support of this invariance result