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Certification as a Rationale for Voluntary Agreements

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  • Patrick Gonzalez

Abstract

I model the participation of firms in a voluntary agreement as a costly certification process whereby a firm informs the Regulator of its pollution intensity. Without this knowledge, the Regulator imposes the same tax on all firms in a heterogeneous industry, unduly hurting the clean ones with the lowest intensity. Certification allows clean firms to get a tax rebate. It also entails an informational externality as the dispersion of types decreases within the pool of non-participating firms, following an unraveling process. Because participation is a firm’s private decision, there is such a thing as a bad voluntary agreement.

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Bibliographic Info

Paper provided by CREATE in its series Cahiers de recherche CREATE with number 2011-2.

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Date of creation: 2011
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Handle: RePEc:lvl:creacr:2011-2

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Keywords: Certification; voluntary agreements; Pigovian taxes; pollution;

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  1. Simon Ashby & Swee-Hoon Chuah & Robert Hoffmann, 2004. "Industry Self-Regulation: A Game-Theoretic Typology of Strategic Voluntary Compliance," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 11(1), pages 91-106.
  2. Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
  3. Na Li Dawson & Kathleen Segerson, 2008. "Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets," Land Economics, University of Wisconsin Press, vol. 84(1), pages 97-114.
  4. Heyes, Anthony G., 2005. "A signaling motive for self-regulation in the shadow of coercion," Journal of Economics and Business, Elsevier, Elsevier, vol. 57(3), pages 238-246.
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