Minimum quality standards in a horizontally differentiated market

Labels that provide information about the environmental attributes seem to be designed to encourage firms to compete over environmental quality. However, it is sometimes possible to enhance the environmental attributes of products at the expense of other desirable product attributes. This chapter examines the effect of product labeling when environmental enhancements come at the expense of other desirable attributes. I find that hoped for competition over product quality may not result. I go on to analyze the impact of a supplemental regulation of a minimum quality standard. I show that a minimum quality standard, if properly imposed, may benefit all consumers and improve social welfare.