Information Disclosure as Environmental Regulation: A Theoretical Analysis
Mark A. Cohen
Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School; Resources for the Future
Centre for Development Studies (CDS) India
Governments around the world are beginning to embrace a new form of environmental regulation - mandatory disclosure of information. While information disclosure programs appear to have an impact on subsequent firm behavior - often resulting in lower levels of pollution - little is known about the costs and benefits of these programs and whether or not they enhance social welfare. This paper presents a simple bargaining model where mandatory information disclosure is used to overcome a lack of information on the part of the public. We characterize the conditions under which information disclosure will lead to a reduction in emissions, and ultimately, the conditions under which it will enhance social welfare. Several extensions of the model are briefly explored, including the effect of two sources of pollution - only one of which is subject to information disclosure.
Number of Pages in PDF File: 34
Keywords: environmental regulation, information disclosure
JEL Classification: D62, H41, Q58
Date posted: August 7, 2006
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