Eco -labels: Their impact on domestic markets and international trade flows

This research investigates the impact of eco-labels on both domestic markets and international trade flows. There are a few basic types of eco-labels but in general they are third party signals to consumers that a particular product is more environmentally friendly than competing products.;Chapter 1 provides a formal analysis of the welfare and trade implications of eco-labeling schemes. The analysis is couched in the context of a stylized model of the textiles market in which trading takes place between an industrialized North (domestic) and a developing South (foreign). Textiles eco-labeling involves production-process standards, raising concerns of protectionism harming the South. The analysis investigates several labeling scenarios (labeling by the North, labeling by both the North and South, and harmonization). The two label scenario is particularly interesting because it allows inferences about what kind of harmonization might be expected.;Apparel made with certified organically grown cotton may be taken as a signal by consumers that the product is more environmentally friendly than similar products. Chapter 2 applies a hedonic price function model to evaluate the extent of market valuation of environmental claims by apparel manufacturers. Price and characteristic data drawn from mail order catalogs are employed to investigate the pricing strategies of organic cotton apparel retailers. The estimation indicates a fairly robust and significant premium of 33.8% for the organic cotton appellation but finds no evidence of a premium for environmentally friendly dyes. Despite the fact that Patagonia controls a much larger portion of the organic cotton apparel market than any other firm, no evidence of heterogeneous pricing of the organic attribute is detected. The existence of a health component to the price premium for organic cotton was investigated but the evidence was mixed.;Chapter 3 incorporates the impact of the eco-label certification process in an analysis of the viability of the organic cotton market. A model of organic cotton supply decisions under price and yield uncertainty is developed. Simulations using price and experimental yield data suggest that only nearly risk neutral farmers would choose to farm cotton organically. Organic cotton yields are notoriously unpredictable and without reductions in its yield volatility, this problem is likely to restrain organic cotton production to its current niche market level. Land stewardship as a motivation for organic cotton farming is discussed and may offer a partial explanation as to why some farmers are willing to take the risks associated with organic farming.