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Greenwash: Corporate Environmental Disclosure under Threat of Audit

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Author Info
Thomas P. Lyon (Stephen M. Ross School of Business at the University of Michigan)
John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

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Abstract

We develop an economic model of “greenwash,” in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We identify conditions under which NGO punishment of greenwash backfires, inducing the firm to become less rather than more forthcoming about its environmental performance. We show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems. Mandatory disclosure rules offer the potential for better performance than NGO auditing, but the necessary penalties may be so large as to be politically unpalatable. If so, a mix of mandatory disclosure rules, NGO auditing and environmental management systems may be needed to induce full environmental disclosure.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2006-07-lyon-maxwell.pdf
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Publisher Info
Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2006-07.

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Date of creation: Mar 2006
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Handle: RePEc:iuk:wpaper:2006-07

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L0 - Industrial Organization - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Thomas P. Lyon & John W. Maxwell, 2004. "Astroturf: Interest Group Lobbying and Corporate Strategy," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 13(4), pages 561-597, December. [Downloadable!] (restricted)
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  2. Patten, Dennis M., 1992. "Intra-industry environmental disclosures in response to the Alaskan oil spill: A note on legitimacy theory," Accounting, Organizations and Society, Elsevier, vol. 17(5), pages 471-475, July. [Downloadable!] (restricted)
  3. Tom Tietenberg, 1998. "Disclosure Strategies for Pollution Control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 587-602, April. [Downloadable!] (restricted)
  4. Timothy J. Feddersen & Thomas W. Gilligan, 2001. "Saints and Markets: Activists and the Supply of Credence Goods," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(1), pages 149-171, 03. [Downloadable!] (restricted)
  5. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 1-26, January. [Downloadable!] (restricted)
  6. repec:cup:cbooks:9780521819473 is not listed on IDEAS
  7. David P. Baron, 2003. "Private Politics," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 12(1), pages 31-66, 03. [Downloadable!] (restricted)
  8. Robert Innes, 2006. "A Theory of Consumer Boycotts under Symmetric Information and Imperfect Competition," Economic Journal, Royal Economic Society, vol. 116(511), pages 355-381, 04. [Downloadable!] (restricted)
  9. Hyun Song Shin, 2003. "Disclosures and Asset Returns," Econometrica, Econometric Society, vol. 71(1), pages 105-133, January. [Downloadable!] (restricted)
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Cited by:
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  1. MAHENC Philippe, 2008. "Introducing Greens Goods," Working Papers 08.03.247, LERNA, University of Toulouse. [Downloadable!]
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