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Voluntary Environmental Investment and Responsive Regulation

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  • John Maxwell

    ()

  • Christopher Decker

Abstract

Instances of corporate voluntary environmental investments have been rising in recent years. Motivations for such activities include corporate image building, regulatory preemption, and production cost savings. While some of these investments arise from industry attempts to set environmental standards where none currently exist, many investments seem to be aimed at reducing the costs of complying with existing regulations. Using a simple game-theoretic model, we investigate firm motivations for, and welfare consequences of, these types of voluntary investments by focusing on the role regulatory enforcement might play. We find that such investments unambiguously increase when an enforcement regulator acts as a Stackelberg follower (a regulatory structure we refer to as responsive regulation) in setting its monitoring and enforcement strategy. These additional investments may be socially undesirable, necessitating a restructuring of non-compliance penalties. Copyright Springer 2006

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 33 (2006)
Issue (Month): 4 (04)
Pages: 425-439

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Handle: RePEc:kap:enreec:v:33:y:2006:i:4:p:425-439

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Web page: http://www.springerlink.com/link.asp?id=100263

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Cited by:
  1. Heyes, Anthony & Kapur, Sandeep, 2009. "Enforcement missions: Targets vs budgets," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 129-140, September.
  2. Arguedas, Carmen, 2010. "Pollution Standards, Technology Investment and Fines for Non-Compliance," Working Papers in Economic Theory 2010/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  3. Harrington, Donna Ramirez, 2012. "Two-stage adoption of different types of pollution prevention (P2) activities," Resource and Energy Economics, Elsevier, vol. 34(3), pages 349-373.
  4. Donna Ramirez Harrington, 2013. "Effectiveness Of State Pollution Prevention Programs And Policies," Contemporary Economic Policy, Western Economic Association International, vol. 31(2), pages 255-278, 04.
  5. Thomas P. Lyon & John W. Maxwell, 2007. "Corporate Social Responsibility and the Environment: A Theoretical Perspective," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2007-16, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  6. Pierre Fleckinger & Matthieu Glachant, 2009. "La responsabilité sociale de l'entreprise et les accords volontaires sont-ils complémentaires ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00447028, HAL.
  7. Fleckinger, Pierre & Glachant, Matthieu, 2011. "Negotiating a voluntary agreement when firms self-regulate," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 41-52, July.
  8. Madhu Khanna & George Deltas & Donna Harrington, 2009. "Adoption of Pollution Prevention Techniques: The Role of Management Systems and Regulatory Pressures," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 44(1), pages 85-106, September.
  9. repec:hal:journl:hal-00447028 is not listed on IDEAS
  10. Patricia Crifo & Vanina Forget, 2012. "The Economics of Corporate Social Responsibility: A Survey," Working Papers hal-00720640, HAL.
  11. Patricia Crifo & Vanina Forget, 2013. "La responsabilité sociale et environnementale des entreprises : mirage ou virage ?," Working Papers hal-00830642, HAL.
  12. Shanti Gamper-Rabindran & Stephen Finger, 2013. "Does industry self-regulation reduce pollution? Responsible Care in the chemical industry," Journal of Regulatory Economics, Springer, vol. 43(1), pages 1-30, January.
  13. Guerrero, Santiago & Innes, Robert, 2008. "Statutory Rewards to Environmental Self-Auditing: Do They Reduce Pollution and Save Regulatory Costs? Evidence from a Cross-State Panel," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6204, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Innes, Robert & Sam, Abdoul G., 2003. "Voluntary Pollution Abatement: Testing Alternative Theories," 2003 Annual meeting, July 27-30, Montreal, Canada 21945, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  15. Matthieu Glachant & Pierre Fleckinger, 2009. "La responsabilité sociale de l’entreprise et les accords volontaires sont-ils complémentaires ?," Économie et Prévision, Programme National Persée, vol. 190(4), pages 95-105.
  16. Thomas P. Lyon & John W. Maxwell, 2012. "Self-Regulation, Negotiated Agreements and Social Welfare," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2012-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  17. Roberto Antonietti & Alberto Marzucchi, 2013. "Environmental investments and firms' productivity: a closer look," SEEDS Working Papers 0114, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jan 2014.
  18. Sam, Abdoul G. & Innes, Robert & Khanna, Madhu, 2006. "How do Voluntary Pollution Reduction Programs (VPRs) Work? An Empirical Study of Links between VPRs, Environmental Management, and Environmental Performance," 2006 Annual meeting, July 23-26, Long Beach, CA 21192, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  19. Thomas P. Lyon & John W. Maxwell, 2007. "Public Voluntary Programs Reconsidered," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2007-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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