Global Resources and Eco-Labels: A Neutrality Result

I evaluate the effectiveness of eco-labeling programs that are designed to mitigate transboundary environmental problems. A simple two-country model is considered, where consumers in each country value a common environmental resource. It is shown that, in equilibrium, the level of damage is independent of whether one or both countries have eco-labeling policies. Hence, the implementation of an existing eco-labeling program by a second country may have no effect, or a very limited effect, on the stock of the environmental resource. The result highlights potential limitations of eco-labeling policies in this international context.