Credence Goods, Efficient Labelling Policies, and Regulatory Enforcement

Abstract

We analyse the optimality of information revelation of hidden attributes of “credence goods” via alternative labelling procedures. When consumers are heterogeneous in their willingness to pay for the hidden attribute, producers can either self-label their products, or have them certified by a third party. The government can impose self or third party labelling requirements on either the “green” or the “brown” producers. Our benchmark model develops a condition that links the optimal imposition of third party labelling to the relative market share of each type of the good under complete information. We extend our analysis to incorporate asymmetric information and cheating by the producers. When corrupt producers can affix spurious labels, the government needs to supplement the labelling policy with costly monitoring activities. We find that mandatory self-labelling schemes generally dominate mandatory third party labelling, unless the “market share effect” greatly exceeds the “incentive-to-cheat effect”. Copyright Springer Science+Business Media, Inc. 2007corruption, credence goods, eco-labelling, monitoring, self-labelling, third party labelling, Q58, L15, D82,

Multiplication of Environmental Labelling and Information Schemes (ELIS)

“…If the NGO label pre-empts the imposition of the MQS, then welfare is reduced relative to the case where there is no label, and the MQS is imposed first. Baksi and Bose (2007) find that government action can enhance the performance of ecolabels. In particular, firms may have incentives to adopt selflabelling because it is cheaper than third-party labelling.…”

“…If the NGO label pre-empts the imposition of the MQS, then welfare is reduced relative to the case where there is no label, and the MQS is imposed first. Baksi and Bose (2007) find that government action can enhance the performance of ecolabels. They consider a model in which products are of only two types: green or brown, and firms can either make their own green claims (self-label) or pay a third party to certify the quality of their product.…”

Organic vs. Non-Organic Food Products: Credence and Price Competition

“…In their model, the consumers are able to observe the quality of the product; thus, customers trust is not a problem. Baksi and Bose [31] study producers' optimal labeling decisions in signal game, where they can either self-label their products, or have them certified by a third party. They show that the government needs to supplement the labeling policy with costly monitoring activities in conditions under which corrupt producers can affix spurious labels.…”

Le label AB, dispositif de promesse ou de jugement ?

“…Cette distinction entre marché-prix et marché-jugement oppose, d'un côté, les marchés de « biens de recherche » (Nelson, 1970) qui sont, par construction, des biens correspondant à un ensemble de caractéristiques prédéfinies de qualité et, de l'autre, certains « biens de croyance » (Baksi et Bose, 2007) dans la mesure où ils sont irréductibles à des biens de recherche. Concernant ces « biens de croyance », le consommateur est dans l'impossibilité de trouver l'information dont il aurait besoin, mais il est de plus impossible de la lui fournir.…”