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Journal of Regulatory Economics

, Volume 52, Issue 3, pp 333–361 | Cite as

Green certification, heterogeneous producers, and green consumers: a welfare analysis of environmental regulations

  • Jason Walter
  • Yang-Ming ChangEmail author
Original Article

Abstract

We develop a vertical differentiation model to analyze welfare implications of environmental policies in a competitive market with production and consumption heterogeneity. Consumers with heterogeneous preferences choose between non-green and certified green products, while producers with heterogeneous production costs decide whether to engage in green production. In order for green products to be recognized by consumers, producers must join a green club. Key findings are summarized as follows. (i) The number of green producers, environmental standard, and overall welfare under the market solution are all socially sub-optimal. (ii) The introduction of a subsidy policy for greener production and standards is shown to increase social welfare, but is not Pareto optimal. (iii) A dual policy, which combines abatement subsidizes for a greener production standard and a tax charge for green certification, is shown to be the Pareto-optimal outcome.

Keywords

Eco-certification Clubs Producer heterogeneity Green consumers Environmental regulations 

JEL Classification

Q58 D41 D71 H23 

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.Department of Social ScienceUniversity of Wisconsin-StoutMenomonieUSA
  2. 2.Department of EconomicsKansas State UniversityManhattanUSA

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