Government Clubs: Theory and Evidence from Voluntary Environmental Programs

Abstract

The U.S. Environmental Protection Agency (EPA) has established numerous voluntary environmental programs over the last fifteen years, seeking to encourage businesses to make environmental progress beyond what current law requires them to achieve. EPA aims to induce beyond-compliance behavior by offering various forms of recognition and rewards, including relief from otherwise applicable environmental regulations. Despite EPA's emphasis on voluntary programs, relatively few businesses have availed themselves of these programs -- and paradoxically, the programs that offer the most significant regulatory benefits tend to have the fewest members. We explain this paradox by focusing on (a) how programs' membership screening corresponds with membership rewards, and (b) how membership levels correspond, in turn, with membership screening. Our analysis of three major case studies, as well as of data we collected on all of EPA's "green clubs," shows that EPA combines greater rewards with more demanding membership screening, which in turn corresponds with lower participation. EPA's behavior can be understood as a response to the political risks the agency faces when it recognizes and rewards businesses it otherwise is charged with regulating. Given the political constraints on EPA's ability to offer significant inducements to business, we predict participation in all but the most inconsequential voluntary environmental programs will remain quite low, thereby inherently limiting the ultimate value of voluntary programs as a strategy for advancing environmental protection.

Keywords: environmental leadership programs, innovative models of regulation, self-regulation, green clubs, political economy of regulation, Project XL, 33/50 Program, Performance Track, Environmental Protection Agency, Regulatory agencies, regulatory policy making, next generation environmental policy

JEL Classification: D73, K23, K32