Ashton Pallottini

Consumer misconceptions about the environmental impacts of goods, particularly regarding carbon emissions, are prevalent in the United States and Europe. There is growing support among European lawmakers and American environmentalists for carbon labeling, aiming to directly inform consumers about the carbon emissions associated with each product. While carbon labeling has the potential to enhance consumer knowledge and welfare, it also has drawbacks. In the case of single-use goods, we find that eco-labeling may have unintended consequences. Through two Prolific experiments involving American consumers, we identify perverse informational effects resulting from incomplete eco-labeling of negatively correlated environmental impacts. Consumers mistakenly perceive a positive correlation between carbon emissions and wastefulness (time to decompose) in single-use goods. When presented with a label that solely indicates carbon content, consumers become on average more poorly informed about the wastefulness of the product. We further document that labeling only one environmental impact may alter consumer preferences through increasing salience of the lone labeled impact. Notably, our revealed preference exercise shows that consumer behavior only changes when subjected to carbon labeling, while labeling both carbon and waste does not alter behavior. In a follow-up experiment, we vary the medium through which consumers receive information on carbon and waste in order to isolate mechanisms. We find that improved understanding of carbon and altered preferences from salience in unilateral labeling explain roughly half each of the observed behavioral change, whereas decreased understanding of waste has little impact. Depending on the relative sizes of social costs and willingnesses-to-pay, policymakers may thus find either of carbon or carbon-and-waste labels to be preferable for implementation.