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Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets

  • Na Li Dawson
  • Kathleen Segerson

We consider a policy environment in which an entire industry is faced with possible imposition of an emissions tax if environmental goals are not met voluntarily. We develop a multiple-firm model of pollution abatement in this context. Using the concept of a self-enforcing equilibrium, we examine the free-riding incentive of individual firms and its impact on the viability of the voluntary approach. We find that, despite the free-riding problem, a sub-group of firms have an incentive to participate in the VA. The VA is strictly preferred by the industry as a whole, although it is not cost-minimizing.

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Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 84 (2008)
Issue (Month): 1 ()
Pages: 97-114

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Handle: RePEc:uwp:landec:v:84:y:2008:i:1:p:97-114
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  1. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, November.
  2. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
  3. Donsimoni, Marie-Paule & Economides, Nicholas S & Polemarchakis, Herakles M, 1986. "Stable Cartels," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 317-27, June.
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  7. Rondeau, Daniel & Schulze, William D. & Poe, Gregory L., 1997. "Voluntary Revelation Of The Demand For Public Goods Using A Provision Point Mechanism," Working Papers 7265, Cornell University, Department of Applied Economics and Management.
  8. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  9. Maxwell, John W & Lyon, Thomas P & Hackett, Steven C, 2000. "Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 583-617, October.
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  11. Wu, JunJie & Babcock, Bruce A., 1995. "Optimal Design of a Voluntary Green Payment Program Under Asymmetric Information," Staff General Research Papers Archive 843, Iowa State University, Department of Economics.
  12. Nir Becker & K. William Easter, 1999. "Conflict and Cooperation in Managing International Water Resources Such as the Great Lakes," Land Economics, University of Wisconsin Press, vol. 75(2), pages 233-245.
  13. Khanna, Madhu & Damon, Lisa A., 1999. "EPA's Voluntary 33/50 Program: Impact on Toxic Releases and Economic Performance of Firms," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 1-25, January.
  14. Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
  15. Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
  16. Bagnoli, Mark & McKee, Michael, 1991. "Voluntary Contribution Games: Efficient Private Provision of Public Goods," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 351-66, April.
  17. Karine Nyborg, 2000. "Voluntary Agreements and Non-Verifiable Emissions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(2), pages 125-144, October.
  18. Mark Bagnoli & Barton L. Lipman, 1989. "Provision of Public Goods: Fully Implementing the Core through Private Contributions," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 583-601.
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  20. Arora Seema & Cason Timothy N., 1995. "An Experiment in Voluntary Environmental Regulation: Participation in EPA's 33/50 Program," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 271-286, May.
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