Article

Journal of Economics

, Volume 108, Issue 3, pp 249-272

Open Access This content is freely available online to anyone, anywhere at any time.

Informative advertising by an environmental group

  • Pim HeijnenAffiliated withFaculty of Economics and Business, University of Groningen Email author 

Abstract

Consuming a product does not (necessarily) reveal the environmental damage it may cause. In terms of environmental damage, most goods are credence goods. Therefore, advertising and pricing rarely can transmit such information effectively to consumers. This article considers the scope with which an environmental group (EG) can signal this information to consumers via advertising and campaigning. Although an EG can inform the public, the welfare effects are ambiguous. Therefore, the EG may not have an incentive to acquire information about the firm’s production practices. However, when the firm chooses the level of environmental damage and the EG chooses whether to acquire information, there exists a mixed-strategy equilibrium for some parameter values, such that the EG acquires information, and the threat of advertising causes the firm to produce an environmentally friendly good.

Keywords

Environmental group Environmental quality Monopoly Informative advertising Asymmetric information Information acquisition

JEL Classification

L12 L30 Q50