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Corporate Apology for Environmental Damage

Author

Listed:
  • Ben Gilbert

    (Division of Economics and Business, Colorado School of Mines)

  • Alexander James

    (Department of Economics and Public Policy, University of Alaska Anchorage)

  • Jason Shogren

    (Department of Economics, University of Wyoming)

Abstract

Apologies are a powerful way to restore trust and reduce punishment costs in bilateral settings. But what do we know about public apologies for large scale man-made disasters? Herein we report on results from an experiment with apologies in a multilateral setting: a firm-caused environmental disaster. Subjects read about an oil spill scenario, and learned whether the oil firm made a full apology, a partial apology, or no apology, and whether the firm had a good, bad, or no environmental reputation. A partial apology is one that fails to accept full material responsibility for damages, such as by shifting the blame to another party. We find that full apologies and better reputation reduce the demand for punishment. However, full apologies and reputation are substitutes, with reputation being significantly more important. Additionally, apologies do not reduce the demand for compensation and may increase it if the firm is clearly a bad actor, or if admission of guilt is the only information subjects have. Our results help explain corporate social responsibility investments and greenwashing, and why many public apologies over an environmental disaster are only partial apologies.

Suggested Citation

  • Ben Gilbert & Alexander James & Jason Shogren, 2017. "Corporate Apology for Environmental Damage," Working Papers 2017-02, University of Alaska Anchorage, Department of Economics.
    • Handle: RePEc:ala:wpaper:2017-02
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    File URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201702.pdf
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    Cited by:

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    2. Fan, Sijia & Ge, Qi & Ho, Benjamin & Ma, Lirong, 2023. "Sorry Doesn't Cut It, or Does It? Insights from Stock Market Responses to Corporate Apologies," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 68-86.

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    More about this item

    Keywords

    apologies; environmental disaster; oil spill; cheap talk;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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