• Selected
• Entire List

Abstract:
This article reviews the economic literature on voluntary approaches to environmental regulation. In the last few years there has been a rapid growth in the use of voluntary actions and programs to address environmental concerns. These approaches can be placed into three general categories: (1) Unilateral commitments by industrial firms, sometimes referred to as business-led corporate environmental programs, (2) Public voluntary schemes, in which participating firms agree to standards that have been developed by public bodies such as environmental agencies, and (3) Negotiated agreements created out of a dialogue between government authorities and industry, typically containing a target and a timetable for reaching that target. Negotiated agreements may take on the status of legally binding contracts if legislation empowers executive branches of government to sign them.

Why do firms voluntarily commit to costly improvements in their environmental performance? Reviewing the small but growing literature on voluntary approaches to environmental problems, we identify three types of motivation: improving corporate productivity, appealing to "green" consumers, and optimizing corporate regulatory strategy. We find that while some existing theoretical work supports the so-called "win-win" stories of voluntary environmental behavior (increasing both profits and social welfare) that are prominent in the popular press, other theories point to potential welfare-reducing voluntary actions. By comparing the assumptions of the various models, we identify a set of conditions under which welfare-reducing voluntary actions are likely to occur.

Turning from theory to empirics, we review the existing empirical studies of voluntary approaches to environmental problems. Since these voluntary approaches are relatively new, the number of existing studies is small. Still, these studies provide some useful insight into the factors which motivate corporations, regulators, and legislators to pursue the voluntary option. We identify eight key findings of the existing empirical studies, and discuss cases in which existing empirical results are at odds with one another. Finally, we caution that these findings should be regarded as preliminary given the current paucity of corroborative empirical work. The concluding section examines the most urgent gaps in both the theoretical and empirical work in the area, and contains suggestions for future research.

Abstract:
This article reviews the economic literature on voluntary approaches to environmental regulation. In the last few years there has been a rapid growth in the use of voluntary actions and programs to address environmental concerns. These approaches can be placed into three general categories: (1) Unilateral commitments by industrial firms, sometimes referred to as business-led corporate environmental programs, (2) Public voluntary schemes, in which participating firms agree to standards that have been developed by public bodies such as environmental agencies, and (3) Negotiated agreements created out of a dialogue between government authorities and industry, typically containing a target and a timetable for reaching that target. Negotiated agreements may take on the status of legally binding contracts if legislation empowers executive branches of government to sign them.

Why do firms voluntarily commit to costly improvements in their environmental performance? Reviewing the small but growing literature on voluntary approaches to environmental problems, we identify three types of motivation: improving corporate productivity, appealing to "green" consumers, and optimizing corporate regulatory strategy. We find that while some existing theoretical work supports the so-called "win-win" stories of voluntary environmental behavior (increasing both profits and social welfare) that are prominent in the popular press, other theories point to potential welfare-reducing voluntary actions. By comparing the assumptions of the various models, we identify a set of conditions under which welfare-reducing voluntary actions are likely to occur.

Turning from theory to empirics, we review the existing empirical studies of voluntary approaches to environmental problems. Since these voluntary approaches are relatively new, the number of existing studies is small. Still, these studies provide some useful insight into the factors which motivate corporations, regulators, and legislators to pursue the voluntary option. We identify eight key findings of the existing empirical studies, and discuss cases in which existing empirical results are at odds with one another. Finally, we caution that these findings should be regarded as preliminary given the current paucity of corroborative empirical work. The concluding section examines the most urgent gaps in both the theoretical and empirical work in the area, and contains suggestions for future research.

Abstract:
We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political "entry" is costly for consumers, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by overinvesting to raise the rival's welfare in the event of entry. Empirical evidence on releases of toxic chemicals shows that an increased threat of regulation (as proxied by increased membership in conservation groups) indeed induces firms to reduce toxic releases. We establish conditions under which self-regulation, if it occurs, is a Pareto improvement once costs of influencing policy are included.

Abstract:
We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political "entry" is costly for consumers, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by overinvesting to raise the rival's welfare in the event of entry. Empirical evidence on releases of toxic chemicals shows that an increased threat of regulation (as proxied by increased membership in conservation groups) indeed induces firms to reduce toxic releases. We establish conditions under which self-regulation, if it occurs, is a Pareto improvement once costs of influencing policy are included.

Abstract:
We survey the growing theoretical literature on the motives for and welfare effects of corporate greening. We show how both market and political forces are making environmental CSR profitable, and we also discuss morally-motivated or altruistic CSR. Welfare effects of CSR are subtle and situation-contingent, and there is no guarantee that CSR enhances social welfare. We identify numerous areas in which additional theoretical work is needed.

corporate social responsibility, environment, self-regulation, preemption, private politics

Abstract:
We develop an economic model of greenwash, in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We identify conditions under which NGO punishment of greenwash backfires, inducing the firm to become less rather than more forthcoming about its environmental performance. We show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems. Mandatory disclosure rules offer the potential for better performance than NGO auditing, but the necessary penalties may be so large as to be politically unpalatable. If so, a mix of mandatory disclosure rules, NGO auditing and environmental management systems may be needed to induce full environmental disclosure.

Greenwash, Disclosure, Environmental Strategy

Abstract:
We study three corporate non-market strategies designed to influence the lobbying behavior of other special interest groups: 1) "astroturf," in which the firm covertly subsidizes a group with similar views to lobby when it normally would not, 2) the "bear hug," in which the firm overtly pays a group to alter its lobbying activities, and 3) self-regulation, in which the firm voluntarily limits the potential social harm from its activities. All three strategies reduce the informativeness of lobbying, and all reduce the payoff of the public decision maker. We show that the decision maker would benefit by requiring the public disclosure of funds spent on astroturf lobbying, but the availability of alternative influence strategies limits the impact of such a policy.

Special Interest Group, Lobbying, Corporate Strategy

Abstract:
An increasingly popular instrument for solving environmental problems is the "public voluntary agreement (VA)", in which government offers technical assistance and positive publicity to firms that reach certain environmental goals. Prior papers treat such agreements as a superior, low-cost instrument that can be used to preempt a threat of traditional, inefficient regulation. We present a more general model in which public VAs may instead be weak tools used when political opposition makes environmental taxes infeasible. We explore the conditions under which taxes, public VAs, and unilateral industry actions are to be expected, and the welfare implications of the various instruments. Notably, we also show that welfare may be reduced by the introduction of public VAs.

self-regulation, public voluntary agreements, preemption

Abstract:
When consumers are unsure of the exact standard that a quality certificate or label represents, they must infer the difficulty of the standard in part from observing which firms adopt the label. Key results from the certification and disclosure literatures are thereby altered. First, consumers are more suspicious of a label if a firm with a bad reputation adopts it, so certification can be less appealing to bad firms than average firms or good firms. Second, as the number of available labels increases, the informativeness of certification decreases rather than increases. Third, adoption of a label by one firm need not increase pressure on other firms to also adopt it. Instead, a label can be either "legitimitized" or "spoiled" for use by other products depending on whether a product with a favorable or unfavorable reputation is certified first. These problems are mitigated if certification is mandatory or if some standards are "focal", even if standards remain uncertain. The model is applied to eco-labels and is also relevant for nutrition labels, academic journals, club memberships, diplomas, and related environments.

Eco-labels, disclosure, certification, persuasion, standards

Abstract:
"Public voluntary programs" (PVPs) involve government offers of positive publicity and technical assistance to firms that reach certain environmental goals. A growing body of empirical evidence suggests these programs often have little impact on the behavior of their participants. A natural policy conclusion would be to eliminate these programs, but this paper offers several reasons not to jump to such a conclusion. We first present a political-economic framework in which PVPs are viewed as modest subsidies used when political opposition makes stronger environmental regulation infeasible. We then explore the design of PVPs in detail, showing how PVPs can potentially enhance the diffusion of cost-effective techniques for pollution abatement, so long as the information involved is not competitively sensitive. Identifying the effects of PVPs econometrically is difficult because information is likely to diffuse to non-participants. Thus, after the early phases of even a successful PVP, it may well be impossible to detect a difference in performance between participants and non-participants.

Public Voluntary Programs, Regulatory Threat, Information Diffusion

Abstract:
We study three corporate nonmarket strategies designed to influence the lobbying behavior of other special interest groups: (1) Astroturf, in which the firm covertly subsidizes a group with similar views to lobby when it normally would not; (2) the bear hug, in which the firm overtly pays a group to alter its lobbying activities; and (3) self-regulation, in which the firm voluntarily limits the potential social harm from its activities. All three strategies reduce the informativeness of lobbying, and all reduce the payoff of the public decision-maker. We show that the decision-maker would benefit by requiring the public disclosure of funds spent on Astroturf lobbying but that the availability of alternative influence strategies limits the impact of such a policy.

Abstract:
In many markets, governments set minimum quality standards while some sellers choose to compete on the basis of quality by exceeding them. We analyze this phenomenon using a model of vertical product differentiation, interpreting quality as an "environmental friendliness" characteristic fully internalized by the consumer. A standard raising minimum quality then reduces maximum pollution per unit of products sold in the market. In the duopoly case, this leads to increased product qualities, increased quantities sold of both products, and reduced total pollution. As a result, total welfare increases. However, industry profits fall due to increased competition caused by reduced quality differentiation. If the high-quality firm can commit to a specific quality level before regulations are promulgated, it can induce the regulator to weaken its standards, with the result that welfare is reduced.

Abstract:
Successful investment is the life-blood of any nation's life insurance industry. As such the industry relies heavily on well developed capital markets. In turn, a strong insurance industry can have a substantial and positive impact on capital market development. At the present time, China's insurance and capital markets are underdeveloped. Chinese insurance companies are legally restricted from participating in the nation's underdeveloped and highly speculative capital markets. On the one hand, the insurance industry needs to be freed from restrictive investment laws in order to diversify their investment portfolios. On the other hand, a simple liberalization of insurance laws governing investment will not allow for successful portfolio diversification because of underdeveloped and highly speculative capital markets. We examine this dilemma in detail and suggest a package of reforms designed to strengthen China's insurance industry and its capital markets. Our reform proposals are intended to encourage both investigation and debate (domestic and international) into reforms necessary for the development and strengthening of China's life insurance industry.