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Overcompliance and Voluntary Agreements

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  • Alberto Cavaliere

Abstract

Voluntary agreements with industry offer many examplesof overcompliance with respect to environmentalstandards. Such phenomena seem to be irrational butappear less surprising considering firms' strategiesare aimed to internalise environmental quality. Wemodel the choice of the environmental quality ofproducts in a one-shot game between a monopolist andconsumers, to show the existence of inefficientequilibria where quality is low because of moralhazard. The firm can, however, change its' equilibriumstrategy in a repeated but finite game, in order tobuild an environmental reputation if we suppose thatconsumers' information is not only imperfect withregard to quality, but also incomplete with respect toany environmental constraint that may affect thebehaviour of firms (like the threat either of astricter regulation or of potential entry). In atwo-period model, we show the existence of a perfectBayesian equilibrium in mixed strategies where thefirm can revert to the production of green products inorder to influence consumers' beliefs and acquire anenvironmentally friendly reputation. Due to thepeculiarity of environmental information (greenproducts are credence goods), we claim that anexplicit agreement is also necessary in order toestablish monitoring and controlling procedures toverify the performance of firms. These procedures canexplain per se the diffusion of voluntary agreementsthat are nevertheless self-enforcing because of thereputation effect. Copyright Kluwer Academic Publishers 2000

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  • Alberto Cavaliere, 2000. "Overcompliance and Voluntary Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(2), pages 195-202, October.
    • Handle: RePEc:kap:enreec:v:17:y:2000:i:2:p:195-202
    DOI: 10.1023/A:1008322406871
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    References listed on IDEAS

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    1. Anne-Sarah Chiambretto & Hubert Stahn, 2017. "Voluntary Management of Fisheries under an Uncertain Background Legislative Threat," AMSE Working Papers 1712, Aix-Marseille School of Economics, France.
    2. Prieger, James E. & Sanders, Nicholas J., 2012. "Verifiable and non-verifiable anonymous mechanisms for regulating a polluting monopolist," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 410-426.
    3. Chengyan Yue & Terrance M. Hurley & Neil Anderson, 2011. "Do native and invasive labels affect consumer willingness to pay for plants? Evidence from experimental auctions," Agricultural Economics, International Association of Agricultural Economists, vol. 42(2), pages 195-205, March.
    4. Rosetta Lombardo, 2009. "Beyond Compliance: Firms’ Environmental Behaviour. A Survey," Working Papers 200918, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    5. Qizhong YANG & Tsunehiro OTSUKI, 2017. "The Product-Related Environmental Regulation, Innovation, and Competitiveness: Empirical Evidence from Malaysian and Vietnamese Firms," OSIPP Discussion Paper 17E007, Osaka School of International Public Policy, Osaka University.
    6. Keith Brouhle & Donna Ramirez Harrington, 2009. "Firm strategy and the Canadian Voluntary Climate Challenge and Registry (VCR)," Business Strategy and the Environment, Wiley Blackwell, vol. 18(6), pages 360-379, September.
    7. Caplan, Arthur J., 2003. "Reputation and the control of pollution," Ecological Economics, Elsevier, vol. 47(2-3), pages 197-212, December.
    8. Rinaldo Brau & C. Carraro, 2004. "The economic analysis of voluntary approaches to environmental protection. A survey," Working Paper CRENoS 200420, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    9. Shimshack, Jay P. & Ward, Michael B., 2008. "Enforcement and over-compliance," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 90-105, January.
    10. Franco Bedoya,Sebastian & Mani,Muthukumara S., 2020. "The Drivers of Firms' Compliance to Environmental Regulations : The Case of India," Policy Research Working Paper Series 9468, The World Bank.
    11. Sengupta, Aditi, 2015. "Competitive investment in clean technology and uninformed green consumers," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 125-141.
    12. Wu JunJie & Wirkkala Teresa M., 2009. "Firms' Motivations for Environmental Overcompliance," Review of Law & Economics, De Gruyter, vol. 5(1), pages 399-433, June.
    13. Böhringer, Christoph & Frondel, Manuel, 2002. "Assessing Voluntary Commitments: Monitoring is Not Enough!," ZEW Discussion Papers 02-62, ZEW - Leibniz Centre for European Economic Research.
    14. Noll, Juergen, 2004. "Comparing quality signals as tools of consumer protection: are warranties always better than advertisements to promote higher product quality?," International Review of Law and Economics, Elsevier, vol. 24(2), pages 227-239, June.
    15. Ujjayant Chakravorty & Céline Nauges & Henry Thille, 2012. "Gasoline Content Regulation and Compliance among US Refineries," CESifo Working Paper Series 3978, CESifo.
    16. Lander Beloqui & Jose M. Usategui, 2004. "Overcompliance with minimum quality standards," Investigaciones Economicas, Fundación SEPI, vol. 28(2), pages 233-255, May.

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