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Reputation and the Control of Pollution

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  • Arthur Caplan

Abstract

This paper investigates the effectiveness of reputation in inducing a polluting firm to selfregulate its emissions when consumers have imperfect information. In particular, we ask to what extent must consumers reward and punish the firm before it chooses self-regulation as its dominant strategy? We find that if payoffs in the stage game are such that both the consumer and the polluting firm have beliefs that are consistent with each others’ behaviors, then the firm has a positive probability of playing clean in each period of a finite game. Further, we find that a weak reward/punishment scheme may have an adverse effect on the environment, and that there are both environmental and welfare gains associated with strengthening the scheme.

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Bibliographic Info

Paper provided by Utah State University, Department of Economics in its series Working Papers with number 2002-24.

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Length: 39 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:usu:wpaper:2002-24

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Related research

Keywords: reputation; sequential equilibrium; self-regulation; pollution;

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References

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Cited by:
  1. Ardjan Gazheli & Miklós Antal & Ben Drake & Tim Jackson & Sigrid Stagl & Jeroen van den Bergh & Manuel Wäckerle, 2013. "Policy responses by different agents/stakeholders in a transition: Integrating the Multi-level Perspective and behavioral economics," WWWforEurope Working Papers series 48, WWWforEurope.

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