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The NGO's Dilemma: How to Influence Firms to Replace a Potentially Hazardous Substance

Forthcoming in Manufacturing and Service Operations Management

Darden Business School Working Paper No. 2255729

33 Pages Posted: 24 Apr 2013  

Tim Kraft

University of Virginia - Darden School of Business

Yanchong Zheng

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Feryal Erhun

Department of Management Science & Engineering, Stanford University

Date Written: January 15, 2013

Abstract

We study an NGO's decisions when it attempts to remove a potentially hazardous substance from commercial use in a market with competing firms. Specifically, we determine under what market and regulatory conditions an NGO should target the industry versus the regulatory body in order to influence firms to replace the substance. We examine how the NGO's strategy changes as the NGO's pragmatism (i.e., the extent to which the NGO incorporates firms' profits into its decision making) increases. Our results demonstrate that when the NGO is less pragmatic, it should examine the existing market structure to determine whether to target the industry or the regulatory body. However, as the pragmatism of the NGO increases, the NGO should increasingly leverage the competition between firms to ensure that a replacement is available to consumers. We examine multiple extensions including varying the competition dynamics, the NGO targeting both the industry and the regulatory body, the time discounting of replacement costs, and a firm potentially lobbying to counteract an NGO's activism. We show that the ability of a firm to lobby can benefit consumers by motivating the NGO to exert more effort and increase the market sensitivity to a substance, thereby forcing the firm to replace.

Keywords: Non-governmental organizations, environmental regulations, hazardous substance uncertainty, public politics, private politics, game theory

Suggested Citation

Kraft, Tim and Zheng, Yanchong and Erhun, Feryal, The NGO's Dilemma: How to Influence Firms to Replace a Potentially Hazardous Substance (January 15, 2013). Forthcoming in Manufacturing and Service Operations Management; Darden Business School Working Paper No. 2255729. Available at SSRN: https://ssrn.com/abstract=2255729

Tim Kraft (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Yanchong Zheng

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Feryal Erhun

Department of Management Science & Engineering, Stanford University ( email )

473 Via Ortega
Stanford, CA 94305-9025
United States

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