Environment and Development Economics

Theory and Applications

Eco-labels for credence attributes: the case of shade-grown coffee

Bruce A. Larson a1 1
a1 Department of Agricultural and Resource Economics, University of Connecticut, USA. E-mail: blarson@canr.uconn.edu

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Using the case of shade-grown coffee, this paper examines the market impacts of ‘eco-labels’ for credence attributes. First, the Mattoo and Singh (1994) test is conducted for the case of shade-grown coffee to investigate the market impacts of a shade label. This analysis in section 2 shows that a shade label could ‘pass’ the test, but the market impacts are likely to be minor. Section 2 also shows how to use estimates of supply, potential demand, and price elasticities of demand and supply to predict eco-label premiums in the post-label equilibrium. And second, given the importance of consumer demands for eco-label impacts, and since the theoretical foundations of demand for eco-labeled items are not well developed in the literature, Section 3 takes a closer look at the microeconomics of labels and consumer demand. A nested constant-elasticity-of-substitution preference structure is used to derive theoretically consistent Marshallian demands for shade and non-shade coffee. A numerical simulation shows how relative prices and consumer preferences for the credence attribute and variety are both important factors in demand creation of labeled items.


1 This work was supported by the Food Marketing Policy Center at the University of Connecticut. The author thanks, without implicating, Shinano Hayashi for research assistance during the completion of this analysis, and Ron Cotterill, Jeremy Foltz, Kathy Sergerson, Sara Scatasta, the Editor, and three reviewers for their substantive comments and suggestions during the completion of this analysis.