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Eco-Labeling and Asymmetric Information: Environmental Technology Adoption

Ming-Chung Chang

Jin-Li Hu

Working Paper

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Asymmetric information always affects the firm¡¦s decision.  This paper investigates an impact for firm to adopt the eco-label on the abatement of emissions in a market where one of firms has asymmetric information and both firms¡¦ products have an imperfect substitutability.  We find that the market effect of the eco-label may be larger than the cost effect under the case of eco-label on a low abatement of emissions.  At this time, it is benefit for firm to engage the R&D on an eco-label early.  And a large product¡¦s substitutability obstructs the firm without the clean-technology to engage the R&D on an eco-label.  Finally, the overinvestment on R&D in the private section is likely to occur when the monetary value of environmental damage of emissions is small.

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