Taxes, minimum-quality standards and/or product labeling to improve environmental quality and welfare: Experiments can provide answers

Abstract

This study focuses on the welfare impact of taxes, minimum-quality standards, and/or product labeling. A theoretical framework shows that the combination of a label and a per-unit tax is socially optimal. Alternatively, if the label is unavailable, the theory cannot directly conclude which instrument should be socially preferred. Estimations of willingness-to-pay (WTP) are useful for completing the theoretical analysis and evaluating policies ex ante on case-by-case basis. Using hypothetical WTP for shrimp, we confirm that the combination of a label and a tax is socially optimal. In the absence of a label, simulations show that a minimum-quality standard leads to a higher welfare compared to a tax.