Community Pressure for Green Behaviour
The desire to avoid rousing community hostility may encourage firms to behave in an environmentally responsible manner. It has been conjectured that such 'informal regulation' could effectively replace formal intervention in some settings, and usefully complement it in others. We explore these conjectures with mixed results. Informal regulation is necessarily less efficient than a well-designed formal alternative and the pattern of green behaviour induced by the threat of community hostility may increase or decrease welfare. The existence of community pressure may increase or decrease the optimal calibration of a formal intervention (in this case an environmental tax) and may complement or detract from the incentives generated by an optimally-calibrated tax.
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