Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism

50 Pages Posted: 9 Nov 1998

See all articles by John W. Maxwell

John W. Maxwell

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University, Department of Economics; Richard Ivey School of Business

Thomas P. Lyon

University of Michigan, Stephen M. Ross School of Business

Steven C. Hackett

Humboldt State University - School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 1998

Abstract

We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political "entry" is costly for consumers, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by overinvesting to raise the rival's welfare in the event of entry. Empirical evidence on releases of toxic chemicals shows that an increased threat of regulation (as proxied by increased membership in conservation groups) indeed induces firms to reduce toxic releases. We establish conditions under which self-regulation, if it occurs, is a Pareto improvement once costs of influencing policy are included.

JEL Classification: D72, K32, L51, Q28

Suggested Citation

Maxwell, John W. and Lyon, Thomas P. and Hackett, Steven C., Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism (March 1998). FEEM Working Paper No. 55.98. Available at SSRN: https://ssrn.com/abstract=135628 or http://dx.doi.org/10.2139/ssrn.135628

John W. Maxwell (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Department of Business Economics and Public Policy
Kelley School of Business, Indiana University
Bloomington, IN 47405
United States
812-855 9219 (Phone)
812-855 3354 (Fax)

HOME PAGE: http://johnwmaxwell.com

Indiana University, Department of Economics ( email )

Wiley Hall
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Richard Ivey School of Business ( email )

The University of Western Ontario
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Thomas P. Lyon

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
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Steven C. Hackett

Humboldt State University - School of Business and Economics ( email )

1 Harpst Street
Arcata, CA 95521-8299
United States
707-826-3237 (Phone)
707-826-6666 (Fax)

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