Environmental Labelling: Issues of Enforcement and Approval of Uniform Standards

This paper has two parts. In the first, theoretical, section it explores issues concerning the enforcement of a mandatory environmental scheme in which firms make decisions about compliance by considering both the expected fines in the case of cheating, and the costs of compliance. Two alternative scenarios are considered: mutual exclusiveness vs. coexistence of public and private standards. The second part investigates the possibility of setting up a common environmental standard across countries. Two main variables influence the advantage of any country in adopting a common standard: the nature of environmental damage (local vs. trans-frontier) and the relative efficiency of domestic firms. Analysis has revealed on the one hand how the advantage of complying with the standard may differ widely across countries, and on the other which factors must be taken into consideration when setting up a single standard.