Abstract

The authors provide a formal analysis of the welfare and trade implications of eco-labeling schemes. They present a simple model of vertical (quality) differentiation that captures stylized features of the textiles market in which trading takes place between an industrialized North (domestic) and a developing South (foreign). The paper investigates several labeling scenarios--labeling by North, labeling by 130th North and South, and harmonization of 170th labels--and draws conclusions about their impact on consumers.