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Collective voluntary agreements to eliminate polluting products

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  • Ahmed, Rasha
  • Segerson, Kathleen
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    Abstract

    Recently some industries have collectively agreed not to produce models of a product that do not meet an environmental standard. We present a model to examine a voluntary agreement of this type. The conditions under which an agreement is profitable include the stringency of the agreement, the relative performance of the greener product, industry size and the number of participants. While an agreement can be profitable for all firms (both participants and non-participants), i.e., all firms can be better off with the agreement than without it, nonetheless, a free-rider incentive exists. Thus, despite the potential for a profitable agreement, absent an effective enforcement mechanism, the agreement is not part of a Nash equilibrium. We suggest that this provides a possible explanation for the initial success of the European washing machines agreement, as well as a recent move by the industry to abandon the voluntary approaches and call for mandatory standards.

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    Bibliographic Info

    Article provided by Elsevier in its journal Resource and Energy Economics.

    Volume (Year): 33 (2011)
    Issue (Month): 3 (September)
    Pages: 572-588

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    Handle: RePEc:eee:resene:v:33:y:2011:i:3:p:572-588

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    Web page: http://www.elsevier.com/locate/inca/505569

    Related research

    Keywords: Collective agreements Energy/fuel efficiency Green products/markets Polluting products Voluntary agreements;

    References

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    25. Rasha Ahmed & Kathleen Segerson, 2007. "Emissions Control and the Regulation of Product Markets: The Case of Automobiles," Working papers 2007-40, University of Connecticut, Department of Economics.
    26. Ecchia, Giulio & Lambertini, Luca, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-13, March.
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    Cited by:
    1. Tsvetanov, Tsvetan & Segerson, Kathleen, 2013. "Re-evaluating the role of energy efficiency standards: A behavioral economics approach," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 347-363.
    2. Rasha Ahmed, 2012. "Promoting energy-efficient products: voluntary or regulatory approaches?," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(3), pages 303-321, July.

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