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Self-Regulation, Negotiated Agreements and Social Welfare

  • Thomas P. Lyon

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • John W. Maxwell

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

The literature on voluntary agreements studies self-regulation, negotiated agreements and public voluntary programs, typically in the shadow of a legislative threat. Prior studies have examined each of these instruments in isolation, but interactions between them have received less attention. We show that in the presence of multiple voluntary instruments, equilibrium outcomes and welfare results depend critically on the timing of moves and the bargaining power of each player. In contrast to prior work, we find conditions under which a full-information equilibrium involves self-regulation and no negotiated agreement. We also show that the opportunity to sign a negotiated agreement only reduces welfare when the regulator has little bargaining power and the firm can commit to an inefficient threat to eschew self-regulation should negotiations fail. More generally, we stress the need for the literature to take account of the "technological detail" of particular contexts when studying voluntary agreements.

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File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2012-11-lyon-maxwell.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2012-11.

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Date of creation: Jul 2012
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Handle: RePEc:iuk:wpaper:2012-11
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  1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  2. 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.
  3. John Maxwell & Christopher Decker, 2006. "Voluntary Environmental Investment and Responsive Regulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 33(4), pages 425-439, 04.
  4. 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.
  5. Hoppe, Eva I & Schmitz, Patrick W, 2009. "Can Contracts Solve the Hold-Up Problem? Experimental Evidence," CEPR Discussion Papers 7205, C.E.P.R. Discussion Papers.
  6. Thomas P. Lyon & Eric Rasmusen, 2004. "Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem," Working Papers 2004-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  7. Matthieu Glachant, 2007. "Non-Binding Voluntary Agreements," Post-Print hal-00437769, HAL.
  8. Matthew J. Kotchen, 2003. "Green Markets and Private Provision of Public Goods," Department of Economics Working Papers 2003-05, Department of Economics, Williams College.
  9. repec:cup:cbooks:9780521819473 is not listed on IDEAS
  10. Na Li Dawson & Kathleen Segerson, 2003. "Voluntary Agreements with Industries: Participation Incentives with Industry-wide Targets," Working papers 2004-06, University of Connecticut, Department of Economics.
  11. Anna Alberini & Kathleen Segerson, 2002. "Assessing Voluntary Programs to Improve Environmental Quality," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 157-184, June.
  12. repec:cup:cbooks:9780521603768 is not listed on IDEAS
  13. Denicolò, Vincenzo, 2008. "A signaling model of environmental overcompliance," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 293-303, October.
  14. Straub, Paul G., 1995. "Risk dominance and coordination failures in static games," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(4), pages 339-363.
  15. Allen Blackman, 2010. "Alternative Pollution Control Policies in Developing Countries," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(2), pages 234-253, Summer.
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