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Voluntary Environmental Investment and Responsive Regulation

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  • John Maxwell

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  • Christopher Decker

Abstract

Instances of corporate voluntary environmental investments have been rising in recent years. Motivations for such activities include corporate image building, regulatory preemption, and production cost savings. While some of these investments arise from industry attempts to set environmental standards where none currently exist, many investments seem to be aimed at reducing the costs of complying with existing regulations. Using a simple game-theoretic model, we investigate firm motivations for, and welfare consequences of, these types of voluntary investments by focusing on the role regulatory enforcement might play. We find that such investments unambiguously increase when an enforcement regulator acts as a Stackelberg follower (a regulatory structure we refer to as responsive regulation) in setting its monitoring and enforcement strategy. These additional investments may be socially undesirable, necessitating a restructuring of non-compliance penalties. Copyright Springer 2006

Suggested Citation

  • John Maxwell & Christopher Decker, 2006. "Voluntary Environmental Investment and Responsive Regulation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(4), pages 425-439, April.
  • Handle: RePEc:kap:enreec:v:33:y:2006:i:4:p:425-439
    DOI: 10.1007/s10640-005-4992-z
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    Citations

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    Cited by:

    1. Heyes, Anthony & Kapur, Sandeep, 2009. "Enforcement missions: Targets vs budgets," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 129-140, September.
    2. Patricia Crifo & Vanina Forget, 2012. "The Economics of Corporate Social Responsibility: A Survey," Working Papers hal-00720640, HAL.
    3. Harrington, Donna Ramirez, 2012. "Two-stage adoption of different types of pollution prevention (P2) activities," Resource and Energy Economics, Elsevier, vol. 34(3), pages 349-373.
    4. Guerrero, Santiago & Innes, Robert, 2008. "Statutory Rewards to Environmental Self-Auditing: Do They Reduce Pollution and Save Regulatory Costs? Evidence from a Cross-State Panel," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6204, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Jessica Coria & Xiao-Bing Zhang, 2015. "State-Dependent Enforcement to Foster the Adoption of New Technologies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 359-381, October.
    6. Pierre Fleckinger & Matthieu Glachant, 2009. "La responsabilité sociale de l’entreprise et les accords volontaires sont-ils complémentaires ?," Économie et Prévision, Programme National Persée, vol. 190(4), pages 95-105.
    7. Fleckinger, Pierre & Glachant, Matthieu, 2011. "Negotiating a voluntary agreement when firms self-regulate," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 41-52, July.
    8. Thomas P. Lyon & John W. Maxwell, 2007. "Public Voluntary Programs Reconsidered," Working Papers 2007-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    9. Rassier, Dylan G. & Earnhart, Dietrich, 2015. "Effects of environmental regulation on actual and expected profitability," Ecological Economics, Elsevier, vol. 112(C), pages 129-140.
    10. repec:hal:journl:hal-00447028 is not listed on IDEAS
    11. Patricia Crifo & Vanina Forget, 2013. "La responsabilité sociale et environnementale des entreprises : mirage ou virage ?," Working Papers hal-00830642, HAL.
    12. Thomas P. Lyon & John W. Maxwell, 2014. "Self-Regulation and Regulatory Flexibility: Why Firms May be Reluctant to Signal Green," Working Papers 2014-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    13. Roberto Antonietti & Alberto Marzucchi, 2013. "Environmental investments and firms' productivity: a closer look," SEEDS Working Papers 0114, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jan 2014.
    14. Thomas P. Lyon & John W. Maxwell, 2008. "Corporate Social Responsibility and the Environment: A Theoretical Perspective," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 240-260, Summer.
    15. Carmen Arguedas, 2013. "Pollution standards, technology investment and fines for non-compliance," Journal of Regulatory Economics, Springer, vol. 44(2), pages 156-176, October.
    16. repec:gam:jsusta:v:10:y:2018:i:6:p:1725-:d:148901 is not listed on IDEAS
    17. Donna Ramirez Harrington, 2013. "Effectiveness Of State Pollution Prevention Programs And Policies," Contemporary Economic Policy, Western Economic Association International, vol. 31(2), pages 255-278, April.
    18. Shanti Gamper-Rabindran & Stephen Finger, 2013. "Does industry self-regulation reduce pollution? Responsible Care in the chemical industry," Journal of Regulatory Economics, Springer, vol. 43(1), pages 1-30, January.
    19. Innes, Robert & Sam, Abdoul G., 2003. "Voluntary Pollution Abatement: Testing Alternative Theories," 2003 Annual meeting, July 27-30, Montreal, Canada 21945, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Patricia Crifo & Vanina D. Forget, 2015. "The Economics Of Corporate Social Responsibility: A Firm-Level Perspective Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 112-130, February.
    21. Madhu Khanna & George Deltas & Donna Harrington, 2009. "Adoption of Pollution Prevention Techniques: The Role of Management Systems and Regulatory Pressures," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 85-106, September.
    22. Michael W. Toffel & Jodi L. Short, 2011. "Coming Clean and Cleaning Up: Does Voluntary Self-Reporting Indicate Effective Self-Policing?," Journal of Law and Economics, University of Chicago Press, vol. 54(3), pages 609-649.
    23. Dylan Minor, 2015. "The Value of Corporate Citizenship: Protection," Harvard Business School Working Papers 16-021, Harvard Business School.
    24. Thomas P. Lyon & John W. Maxwell, 2012. "Self-Regulation, Negotiated Agreements and Social Welfare," Working Papers 2012-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    25. Sam, Abdoul G. & Innes, Robert & Khanna, Madhu, 2006. "How do Voluntary Pollution Reduction Programs (VPRs) Work? An Empirical Study of Links between VPRs, Environmental Management, and Environmental Performance," 2006 Annual meeting, July 23-26, Long Beach, CA 21192, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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