Standardized Environmental Management Systems as an Internal Management Tool
University of the Balearic Islands - Facultat de Ciències Econòmiques i Empresarials
Francisco J. André
Universidad Complutense de Madrid (UCM) - Faculty of Economics and Business Administration
February 16, 2012
We build a principal-agent model to analyze the firm's decision to adopt an environmental management system (EMS) and the EMS type, either informal (I) or standardized (S), such as ISO 14001. Our results are consistent with empirical evidence in several respects. A standardized EMS increases the internal control of the firm at the cost of introducing some degree of rigidity that entails an endogenous setup cost. Standardized systems are more prone to be adopted by big and well established firms and under tougher environmental policies. S-adopting firms, on average, devote more effort to abatement although this effort results in lower pollution only if public incentives are strong enough, suggesting a complementarity relationship between standardized EMS and public policies. Emission charges have both a marginal effect on abatement and a qualitative effect on the firm's adoption decision that may induce a conflict between firm's and society's interests. The introduction of standardized systems can result in win-win situations where firms, society and the environment get better off.
Number of Pages in PDF File: 30
Keywords: Environmental Management System, Asymmetric Information, Emission Charges, Principal-Agent Model
JEL Classification: Q58, D82, L51working papers series
Date posted: February 17, 2012 ; Last revised: March 3, 2012
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