Information campaigns and ecolabels by environmental NGOs: Effective strategies to eliminate environmentally harmful components?

Abstract

Environmental nongovernmental organizations (NGOs) are increasingly using strategies to encourage firms to eliminate product components (e.g., palm oil) that are harmful to the environment (e.g., rainforests) or to replace them with NGO-certified sustainable components. Under what conditions do NGOs' information and ecolabeling strategies succeed in eliminating certain harmful components when these components contribute to the intrinsic quality of a product? The paper addresses these questions using a model of two-dimensional vertical product differentiation in a market with consumers either informed or uninformed about the environmental quality of products and two firms that initially offer a product with the harmful component and a harmful component-free product. We show that the information campaign plays a crucial and effective role in improving environmental quality, although the optimal share of informed consumers for the NGO is large but not always 100%. Ecolabeling cannot replace the information campaign. It is only a complementary tool to an intensive information campaign. Used together, they can succeed in triggering the substitution of the certified sustainable component for the harmful one.