Abstract

This paper develops a competitive equilibrium model of greenwashing with heterogeneous consumers and firms and endogenous label credibility. Greenwashing lowers the green premium, discourages clean production, and raises pollution. Despite shared environmental preferences, income differences shape consumers’ access to green-labeled goods. Numerical exercises compare monitoring, pecuniary penalties, pollution taxes, and green-input subsidies, distinguishing their effects on firms’ labeling and technology choices. Enforcement improves credibility but may induce truthful labeling without changing production technology. Taxes and subsidies directly encourage cleaner production and reduce greenwashing in the reported scenarios, highlighting the distinction between correcting deceptive claims and reducing emissions.

Key Words: Greenwashing, Pollution, Labeling.

JEL codes: D50, D62, Q58, L15.