IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Voluntary agreements and the incentives for innovation

  • Kjell Sunnev�g
Registered author(s):

    Various parties have expressed serious concerns regarding the effect of environmental taxes on innovation. The argument is that innovation and investment in emission-abatement technology frequently require capital for investment. Pollution taxes siphon working capital from firms, and new investment becomes more difficult and/or more costly if it is necessary to borrow the capital from banks. In recent years, voluntary agreements have gained increased popularity and have become a central instrument in several countries’ environmental policies, the Netherlands perhaps being the most notable example. A core rationale behind voluntary agreements is that they permit collective targets to be set for the entire sector, allowing for a different pace of realization of energy-efficiency improvements among the various individual companies within a sector. This provides the flexibility for firms to set their own goals in a cost-effective manner and to use their own resources to innovate and effect changes in the manner which suits them best. It has been claimed that voluntary agreements provide an improved climate for innovation. How voluntary agreements rate with regard to innovation incentives relative to environmental taxes depends on several factors, in particular the specific design of the agreement and whether the agreements are renegotiated after the market penetration of new technology. The author claims that, whatever advantages voluntary agreements have over the traditional regulatory approach, which makes mandatory particular forms of behavior or specific technological approaches, it is difficult to see that agreements would provide better incentives for innovation. Incentives for innovation may be particularly poor if the regulator requests renegotiation of the agreement with the arrival of new technology that substantially changes marginal conditions. It is proposed that if the authorities for various reasons nevertheless choose to use voluntary agreements as instruments, the agreements should be designed to be incentive-based.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.envplan.com/abstract.cgi?id=c2s
    File Function: abstract
    Download Restriction: Fulltext access restricted to subscribers, see http://www.envplan.co.uk/C.html for details

    File URL: http://www.envplan.com/epc/fulltext/c18/c2s.pdf
    File Function: main text
    Download Restriction: Fulltext access restricted to subscribers, see http://www.envplan.co.uk/C.html for details

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Pion Ltd, London in its journal Environment and Planning C: Government and Policy.

    Volume (Year): 18 (2000)
    Issue (Month): 5 (October)
    Pages: 555-573

    as
    in new window

    Handle: RePEc:pio:envirc:v:18:y:2000:i:5:p:555-573
    Contact details of provider: Web page: http://www.pion.co.uk

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
    3. Milliman, Scott R. & Prince, Raymond, 1992. "Firm incentives to promote technological change in pollution control: Reply," Journal of Environmental Economics and Management, Elsevier, vol. 22(3), pages 292-296, May.
    4. S Labatt & V W Maclaren, 1998. "Voluntary corporate environmental initiatives: a typology and preliminary investigation," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 16(2), pages 191-209, April.
    5. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    6. Hansen, Lars Gårn, 1997. "Environmental Regulation through Voluntary Agreements," MPRA Paper 47537, University Library of Munich, Germany, revised 1999.
    7. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    8. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
    9. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
    10. Sappington, David E M & Sibley, David S, 1988. "Regulating without Cost Information: The Incremental Surplus Subsidy Scheme," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 297-306, May.
    11. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    12. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:pio:envirc:v:18:y:2000:i:5:p:555-573. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Neil Hammond)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.