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Reputation and the control of pollution

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  • Caplan, Arthur J.

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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Suggested Citation

  • Caplan, Arthur J., 2003. "Reputation and the control of pollution," Ecological Economics, Elsevier, vol. 47(2-3), pages 197-212, December.
  • Handle: RePEc:eee:ecolec:v:47:y:2003:i:2-3:p:197-212
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    Cited by:

    1. Ardjan Gazheli & Miklós Antal & Ben Drake & Tim Jackson & Sigrid Stagl & Jeroen van den Bergh & Manuel Scholz-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.
    2. Juan Pineiro-Chousa & Marcos Vizcaíno-González & María Ángeles López-Cabarcos & Noelia Romero-Castro, 2017. "Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-15, March.
    3. repec:eee:ejores:v:262:y:2017:i:2:p:733-743 is not listed on IDEAS

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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