Estimating the Impact on Efficiency from Voluntary Regulation: An Empirical Study of the Global Copper Mining Industry

This paper uses plant level data on the world's copper mining industry to measure changes in efficiency from the adoption of the ISO 14001 environmental standard. The ISO 14001 is a voluntary standard that sets out minimum guidelines and procedures that firms should follow in order to achieve more effective management of the environment. Anecdotal and case study literature suggests that firms are motivated to adopt the ISO 14001 standard and seek certification for a number of reasons. One important reason is the desire to achieve greater efficiency and cost savings through changes in operating procedures and processes aimed at the minimization of waste pollution and reduction in the use of resource inputs. Using plant level data from 1992-2007 on virtually all of the world's industrial copper mines the study tests this hypothesis in a stochastic frontier and random effects model framework. The study measures the impact on operations of ISO 14001 adoption both in respect to the intention to seek ISO 14001 certification (the period before certification when firms must make necessary changes to their operations and management) and the period when and after certification is achieved. The study finds no evidence that adoption of the ISO 14001 standard imposes a cost on firms - either through lower efficiencies or higher costs. In fact, in many cases adoption is associated with higher efficiency, and to a certain extent, lower costs. Thus, the study's findings would tend to go against the claims of much of the academic literature that regulation has negative impacts on the firm. Although findings were not robust to model choice or a subset sample, our results clearly indicate that, at a minimum, the adoption of the ISO 14001 does not raise costs or lower efficiency for firms.