Costly Enforcement of Voluntary Environmental Agreements with Industries

42 Pages Posted: 17 Oct 2007

See all articles by David M. McEvoy

David M. McEvoy

Appalachian State University - Department of Economics

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Date Written: October 2007

Abstract

Although the theoretical literature on the performance of voluntary approaches to environmental protection has progressed quite far in the last decade, no one has rigorously addressed the obvious point that even voluntary emissions control policies must be enforced. This paper examines the consequences of the need for costly enforcement of voluntary environmental agreements with industries on the ability of these agreements to meet regulatory objectives, the levels of industry participation with these agreements, and the relative efficiency of voluntary and regulatory approaches. We find that enforcement costs that are borne by the members of a voluntary emissions control agreement limit the circumstances under which an agreement can form in place of an emissions tax. However, if an agreement does form, member-financed enforcement induces greater participation than if compliance with the agreement could be enforced without cost to its members. Moreover, a voluntary emission control agreement with an industry can be a more efficient way to achieve an environmental quality objective than an emission tax, but only if: (1) the members of an agreement bear the costs of enforcing compliance with the agreement; (2) there exists member-financed agreements that reach the government's environmental quality target while leaving the members of the agreement at least as well off as they would be under an emissions tax, and (3) the enforcer of the agreement has a significantly better monitoring technology or a higher sanction available to it than the government.

Keywords: Voluntary agreements, self-enforcing agreements, emissions tax, enforcement

JEL Classification: L51, Q58

Suggested Citation

McEvoy, David M. and Stranlund, John, Costly Enforcement of Voluntary Environmental Agreements with Industries (October 2007). Available at SSRN: https://ssrn.com/abstract=1022120 or http://dx.doi.org/10.2139/ssrn.1022120

David M. McEvoy (Contact Author)

Appalachian State University - Department of Economics ( email )

416 Howard Street
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United States
828-262-2148 (Phone)
828-262-6105 (Fax)

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-6328 (Phone)

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