Global Resources and Eco-labels: a Neutrality Result

I evaluate the effectiveness of eco‐labeling programs that are designed to mitigate transboundary environmental problems. A simple two‐country model is considered, where consumers in each country value a common environmental resource. It is shown that, in equilibrium, the level of damage is independent of whether one or both countries have eco‐labeling policies. Hence, the implementation of an existing eco‐labeling program by a second country may have no effect, or a very limited effect, on the stock of the environmental resource. The result highlights potential limitations of eco‐labeling policies in this international context.