Tax, Minimum-Quality Standard, and Label for Regulating Environmental Quality:A Welfare Analysis with Willingness to Pay Elicited in the Lab

Résumé

The results of a lab experiment detailing consumers’ valuations for the environment are used for estimating the welfare impact of a tax, a minimum-quality standard, and a label. Two approaches using consumers’ valuations from the same experiment are considered for estimating welfare changes. The lab experiment is useful for identifying indifferent and concerned consumers, which is crucial for characterizing distortions determining the choice of instruments. Regarding the related empirical application, positive (negative) information revealed in the lab about the environmental effects linked to the shrimp production leads to a statistically-significant increase (decrease) in the willingness to pay. Based on these lab results, simulations show that the combination of a tax and a label is socially-optimal compared to other regulatory instruments.

Codes JEL