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Disclosure of environmental information and investments of firms

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  • Iwata, Hiroki
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    Abstract

    In recent years, voluntary approaches are expected to function as new environmental protection tools. This article analyzes whether environmental information of firms should be mandatorily disclosed or disclosed voluntarily, where consumers consider the environmental burdens of firms when buying their goods. If a mandatory policy is implemented, every firm in the market will be required to disclose their environmental burdens. On the contrary, only firms that want to disclose their environmental burdens will share their environmental information if a voluntary approach is implemented. This article particularly demonstrates the effects of the disclosure rule (mandatory or voluntary) on investment to reduce environmental burdens. The model has two types of firms, clean and dirty ones. Firms that investigate their environmental burdens and turn out to be dirty can invest to reduce them and become clean before they disclose their environmental information. The main conclusions in this article are as follows. (1) Mandatory disclosure policies may induce firms to invest more than a voluntary approach. (2) Firms may have lower expected profit under the mandatory rule than the voluntary approach. (3) Under full information disclosure policy, the environmental burden is smaller than that of other policies.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 54784.

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    Date of creation: 27 Mar 2014
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    Handle: RePEc:pra:mprapa:54784

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    Keywords: Environmental information disclosure; Investment; Asymmetric information;

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    1. Friesen, Lana, 2006. "The social welfare implications of industry self-auditing," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 280-294, May.
    2. Sinclair-Desgagne, Bernard & Gozlan, Estelle, 2003. "A theory of environmental risk disclosure," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 377-393, March.
    3. A. Mitchell Polinsky & Steven Shavell, 2006. "Mandatory versus Voluntary Disclosure of Product Risks," Discussion Papers, Stanford Institute for Economic Policy Research 06-006, Stanford Institute for Economic Policy Research.
    4. Khanna, Madhu & Quimio, Wilma Rose H. & Bojilova, Dora, 1998. "Toxics Release Information: A Policy Tool for Environmental Protection," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 243-266, November.
    5. Steven Shavell, 1994. "Acquisition and Disclosure of Information Prior to Sale," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 20-36, Spring.
    6. Tom Tietenberg, 1998. "Disclosure Strategies for Pollution Control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 11(3), pages 587-602, April.
    7. Mark Cohen & V. Santhakumar, 2007. "Information Disclosure as Environmental Regulation: A Theoretical Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 37(3), pages 599-620, July.
    8. Eriksson, Clas, 2004. "Can green consumerism replace environmental regulation?--a differentiated-products example," Resource and Energy Economics, Elsevier, Elsevier, vol. 26(3), pages 281-293, September.
    9. Esther Blanco & Javier Rey-Maquieira & Javier Lozano, 2009. "The Economic Impacts Of Voluntary Environmental Performance Of Firms: A Critical Review," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 23(3), pages 462-502, 07.
    10. Lyon, Thomas P. & Maxwell, John W., 2003. "Self-regulation, taxation and public voluntary environmental agreements," Journal of Public Economics, Elsevier, Elsevier, vol. 87(7-8), pages 1453-1486, August.
    11. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, 05.
    12. 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.
    13. Innes, Robert & Bial, Joseph J, 2002. "Inducing Innovation in the Environmental Technology of Oligopolistic Firms," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 50(3), pages 265-87, September.
    14. Seema Arora & Timothy N. Cason, 1996. "Why Do Firms Volunteer to Exceed Environmental Regulations? Understanding Participation in EPA's 33/50 Program," Land Economics, University of Wisconsin Press, vol. 72(4), pages 413-432.
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