Are labels good or bad for consumers and firms? The answer may seem straightforward since labels improve information, yet economic theory reveals situations where their introduction reduces the welfare of at least some market participants. This essay reviews the theoretical literature on labels in order to identify and explain the main reasons that may cause labeling to produce undesirable side-effects. In contrast to earlier reviews that either concentrate on narrow topics or treat the subject in a more or less informal way, we bring together the main results from all the currently important topics by presenting and discussing the assumptions and modelbuilding underpinning them. The advantage of this approach is that it identifies the origin of the differences between results, thus allowing the synthesis of results that sometimes appear even to be contradictory. We focus on "quality labels" and examine: i) the impact of labeling on market structure; ii) the side-effects of costly certification; iii) issues related to the label's

Credence goods, Incomplete information, Label, Vertical differentiation, D82, L15,

Porter hypothesis, Environmental regulation, Differentiated products, Coordination, L13, Q50,

The present paper examines how improvements in consumers' environmental awareness influence the choice between output and emission taxes, within a framework of imperfect competition and endogenous choice of abatement level. We first show that in the absence of policy intervention, there exists a level of environmental awareness beyond which welfare is decreasing as market imperfections become more prominent relative to environmental concerns. We also confirm that both output and emission taxes are welfare superior to the free-market case. What is surprising, however, is that the welfare performance of an optimally chosen emissions tax is monotonically decreasing in consumers' environmental sensitivity, while the opposite is true for an output tax up to a certain level. At low levels of consumers' environmental awareness an emissions tax is welfare superior, but eventually, there is a level of environmental awareness beyond which an output-tax welfare dominates an emissions tax. Therefore, an emissions tax is better suited to societies that have not yet developed high levels of environmental awareness, while societies characterized by high levels of environmental awareness should prefer an output tax.