Good Fences Make Good Neighbors: A Longitudinal Analysis of an Industry Self-Regulatory Institution

Abstract

We extend theories of self-regulation of physical commons to analyze self-regulation of intangible commons in modern industry. We posit that when the action of one firm can cause spillover harm to others, firms share a type of commons. We theorize that the need to protect this commons can motivate the formation of a self-regulatory institution. Using data from the US chemical industry, we find that spillover harm from industrial accidents increased after a major industry crisis and decreased following the formation of a new institution. Additionally, our findings suggest that the institution lessened spillovers from participants to the broader industry.

Keywords: institutions, industry self-regulation, commons problems, cooperative strategy

JEL Classification: L14, L15, L65