Optimal eco-label choice strategy for environmentally responsible corporations considering government regulations

Abstract

Eco-labels are an essential market instrument for communicating environmental information about products to consumers. This study aims to identify how government regulations affect the optimal determination of labeling choices in a competitive market. Our findings suggest that an industry-set eco-label is optimal in terms of economic benefits for firms that produce green products. However, a self-set eco-label can be a viable option if the credibility of the self-set label is high enough to be comparable to the industry-set label. For social benefits, the government-set eco-label is superior to both industry-set and self-set labels, but it does not benefit the profits of firms or the industry. Consequently, firms will not actively choose government eco-labels without considering other mandatory measures. Our results also suggest that eco-label credibility and subsidies can improve both economic and social benefits for firms. In addition, an increase in consumer preference is beneficial to social benefits, but not to economic benefits for firms. Furthermore, environmental taxes can improve economic benefits for green firms, but excessive taxes may harm industry performance and social welfare. The findings of this study offer valuable insights for stakeholders in making eco-label decisions. Additionally, by integrating government regulations and voluntary market tools, the study provides important policy implications for enhancing the effectiveness of eco-labels.