Energy labels in the European Union: Consumer inattention and producer responses

Abstract

This paper studies the effect of mandatory eco-labels for durable goods using a bunching design. I exploit discontinuities in the European energy label for washing machines to document consumer inattention in response to the salient quality signal given by the label. The policy effect is driven by adjustments in both supply and demand, which leads to a sales distribution that is strongly concentrated around the label thresholds. Market transformation occurs not only through a local shift in existing segments of the product space, but also through the build-up of a new market segment at the highest label threshold. Regarding price effects, I find no evidence of green premia and argue that competition is effective in preventing this for the case of the European Union.