Does the EU Ecolabel Reduce the Information Asymmetry in Croatia?
Does the EU Ecolabel Reduce the Information Asymmetry in Croatia?

Author(s): Slađana Pavllinović Mršić
Subject(s): Social Sciences
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: EU Ecolabel; Information asymmetry; Croatia
Summary/Abstract: The information asymmetry creates numerous distortions and reduces the efficiency of the real markets. The fact that real product attributes are not observable by a consumer may demotivate some producers although their production would lead to an increase in the social welfare. This is a well-studied phenomenon by economists, but still its empirical testing represents a significant challenge due to its intangible nature. Information asymmetry is often present in the exchange of eco-friendly products since very usually the related production materials and techniques are not verifiable by a consumer. This causes the lack of such products in the economy while the brown products prevail. However, the real-world examples show that there exist mechanisms that restore those markets by reducing the information asymmetry, by increasing the trust, or by changing the profile of buyers. One of them elaborated in this paper is the EU Ecolabel in Croatia. The first part of the research is dedicated to the analysis of adverse selection and the overview of the mechanisms that partly or fully resolve it. The research proceeds with the analysis of the role of the EU Ecolabel as an example of a mechanism that serves to reduce information asymmetry and to restore the markets for eco-friendly products. The previously developed models are applied to analyze Flash Eurobarometer data in order to shed light on the role of the EU Ecolabel in the market for eco-friendly products in Croatia. The empirical findings lead to critical reflection on the existing theoretical frameworks and to an improved understanding of complex empirical testing of information asymmetry models.

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