Do eco-friendly labels also send signals about product quality? Can these signals be detrimental to producers in some instances? Brattle Senior Associate Neil Lessem has co-authored a paper that investigates these questions in the context of the US wine industry. The paper, "Eco-Premium or Eco-Penalty? Eco-Labels and Quality in the Organic Wine Market," was co-authored by Magali A. Delmas, a Professor of Management at the UCLA Institute of the Environment and Sustainability, and published in the February 2017 issue of Business & Society.
The authors explain that eco-labels are meant to reduce information asymmetry between producers and consumers over the environmental attributes of a product or service; however, the emphasis on information asymmetry inhibits how the label meets consumer needs. To further explain this issue, the authors conducted a discrete choice experiment which examined consumer response to two similar eco-labels for wine, one associated with a quality reduction and the other without.
The results of the experiment conclude that respondents preferred both eco-labeled wines over otherwise identical conventional counterparts when the price was lower and the wine was from a lower quality region. However, they also preferred conventional, more expensive wine from a high-quality region. The authors determine that this preference indicates that respondents not only obtain some warm glow value from eco-labeled wine, but also possibly interpret eco-labeling as a signal of lower quality. Moreover, this relationship held across both types of eco-labels, which showed that consumers did not understand the difference between them.
The authors suggest that consumer awareness and understanding of the eco-label, and the consumers' willingness to pay for an eco-labeled product, are important conditions for effective eco-labels. The authors encourage organizations to work with producers and marketers to ensure that eco-labels provide information that clearly communicates their value proposition to consumers, without creating future confusion, or additional unintended product signals.
To read the paper in its entirety, please visit the Business & Society website.
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