Discuss environmental consequences of consumption


Problem: Consumers are increasingly worried about the environmental consequences of consumption. Assume there are two types of producers for the same goods, those who pollute heavily and those who don't. The market currently suffers from an inefficiency as consumers who are environmentally conscious don't consume at all. A certification agency offers to certify either type, as being environmentally friendly for $1 million. What type of signaling is this an example of? What would have to be structurally different for this type of signal to generate efficiency?

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