Participation Incentives and the Design of Voluntary Agreements

29 Pages Posted: 8 Jul 2001

See all articles by Carlo Carraro

Carlo Carraro

Ca' Foscari University of Venice; CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division); IPCC; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Centre for European Policy Studies, Brussels; Green Growth Knowledge Platform

Rinaldo Brau

Università di Cagliari - Department of Economics & Business; Universita di Cagliari - Centre for North South Economic Research (CRENOS)

Giulio Golfetto

Fondazione Eni Enrico Mattei (FEEM), Milan

Date Written: April 2001

Abstract

This paper analyses the conditions under which a group of firms has the incentive to sign a Voluntary Agreement (VA) in order to control its emission flows even in the presence of free-riding by other firms in the industry. For the purpose of this paper it is assumed that free-riders cannot be completely excluded from the expected benefits of the VA, which increase with the number of signatory firms and with the abatement level achieved. The paper focuses on policy design by discussing the features that a VA should possess in order to increase its economic and environmental effectiveness. The results support some important conclusions. First, VAs cannot emerge in the case of a pure public good, i.e. when spillovers are such that all firms benefit from the abatement of the signatory firms. Second, even in the case of partial spillovers, the regulator has to impose a minimum participation constraint for the VA to be signed. In this case, if the minimum participation constraint is met, all firms have an incentive to sign the VA. Third, a VA with a minimum amount of regulation improves welfare with respect to a VA in which firms are free to set their profit maximising abatement level.

Keywords: Voluntary agreement, voluntary approach, environmental protection, free-riding, emissions tax

JEL Classification: K32, D21, Q28

Suggested Citation

Carraro, Carlo and Brau, Rinaldo and Golfetto, Giulio, Participation Incentives and the Design of Voluntary Agreements (April 2001). FEEM Working Paper No. 19.2001, Available at SSRN: https://ssrn.com/abstract=275872 or http://dx.doi.org/10.2139/ssrn.275872

Carlo Carraro (Contact Author)

Ca' Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy
+39 04 1234 9166 (Phone)
+39 04 1234 9176 (Fax)

HOME PAGE: http://www.carlocarraro.org/

CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division) ( email )

Via Augusto Imperatore 16
Lecce, 73100
Italy
+39 0832 288650 (Phone)
+39 0832 277603 (Fax)

IPCC ( email )

C/O World Meteorological Organization
7bis Avenue de la Paix
Geneva, CH-1211
Switzerland
+41-22-730-8208/54/84 (Phone)
+41-22-730-8025/13 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for European Policy Studies, Brussels

1 Place du Congres
B-1000 Brussels, 1000
Belgium
+32 2 229 3911 (Phone)
+32 2 219 4151 (Fax)

Green Growth Knowledge Platform ( email )

International Environment House
11-13 chemin des Anemones
Geneva, 1219
Switzerland

HOME PAGE: http://www.greengrowthknowledge.org/

Rinaldo Brau

Università di Cagliari - Department of Economics & Business ( email )

V. S. Ignazio 17
Cagliari 09123, CA 09123
Italy
+39 070 6753315 (Phone)
+39 178 2243016 (Fax)

Universita di Cagliari - Centre for North South Economic Research (CRENOS) ( email )

V. S. Ignazio 78
Cagliari, 09124
ITALY

Giulio Golfetto

Fondazione Eni Enrico Mattei (FEEM), Milan

Corso Magenta 63
20123 Milan
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
225
Abstract Views
2,232
rank
187,183
PlumX Metrics