Informative advertising by an environmental group

Pim Heijnen*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

4 Citations (Scopus)
50 Downloads (Pure)

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.

Original languageEnglish
Pages (from-to)249-272
Number of pages24
JournalJournal of Economics
Volume108
Issue number3
DOIs
Publication statusPublished - Apr-2013

Keywords

  • Environmental group
  • Environmental quality
  • Monopoly
  • Informative advertising
  • Asymmetric information
  • Information acquisition
  • CREDENCE GOODS
  • POLLUTING PRODUCTS
  • COMPETITION
  • SIGNALS
  • QUALITY
  • MARKETS
  • PRICE

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