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Environmental Auditing in Management Systems and Public Policy

  • H. Landis Gabel
  • Bernard Sinclair-Desgagné

New international standards for environmental auditing are now being actively promoted by public authorities and adopted by private firms. One important feature of these standards is their emphasis on managerial systems and incentives that support a wiser use of environmental resources. This paper studies such a system, in which incentive compensation may be based in part on the results of an environmental audit. It is found that optimal wages after an environmental audit is performed should have a greater range than wages paid when no audit has occured. It is also shown that the decision to conduct an environmental audit and the size of the expected wage in this case depend crucially on whether the agent's prudence (or precautionary motives) dominates or not his aversion to risk. It is finally found that the insertion of environmental audits within current management systems would certainly induce a manager to care more about the environment; moreover, although this may come at the expense of less concern for other activities, we find plausible circumstances in which properly designed environmental audits overcome such a tradeoff and increase the manager's attention to both environmental and traditional tasks. The public policy maker's role and interest in promoting environmental auditing standards is also discussed briefly. De nouvelles normes pour les audits environnementaux sont actuellement en train d'être élaborées et implantées par les gouvernements et les entreprises. Ces normes mettent principalement l'accent sur les systèmes de gestion et les incitations qui encouragent un meilleur usage des ressources environnementales. Cet article étudie un tel système, où la rémunération pourrait dépendre en partie des conclusions d'un audit environnemental. On trouve que le salaire versé après la tenue d'un audit devrait varier davantage que celui versé lorsqu'il n'y a pas eu d'audit. On montre aussi que la décision d'effectuer un audit environnemental et le niveau du salaire espéré dans ce cas dépendent essentiellement de la relation entre la prudence (ou la précaution) et l'aversion pour le risque du manager. On montre finalement que l'insertion d'audits environnementaux au sein des systèmes managériaux usuels poussera certainement un manager à se préoccuper davantage de l'environnement,0501s la redistribution de l'effort de ce dernier pourrait bien ne pas survenir au détriment de ses activités principales au sein de l'entreprise. On discute enfin brièvement du rôle et de l'intérêt du décideur public dans l'élaboration et la promotion de nouvelles normes pour les audits.

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File URL: http://www.cirano.qc.ca/files/publications/96s-21.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 96s-21.

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Length: 27 pages
Date of creation: 01 Jul 1996
Date of revision:
Handle: RePEc:cir:cirwor:96s-21
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  1. Robert M. Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  2. 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.
  3. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  4. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  5. Ronald A. Dye, 1986. "Optimal Monitoring Policies in Agencies," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 339-350, Autumn.
  6. Michael E. Porter & Claas van der Linde, 1995. "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 97-118, Fall.
  7. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
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