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Certification as a Rationale for Voluntary Agreements

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  • Patrick Gonzalez

Abstract

I model the participation of firms in a voluntary agreement as a costly certification process whereby a firm informs the Regulator of its pollution intensity. Without this knowledge, the Regulator imposes the same tax on all firms in a heterogeneous industry, unduly hurting the clean ones with the lowest intensity. Certification allows clean firms to get a tax rebate. It also entails an informational externality as the dispersion of types decreases within the pool of non-participating firms, following an unraveling process. Because participation is a firm’s private decision, there is such a thing as a bad voluntary agreement.

Suggested Citation

  • Patrick Gonzalez, 2011. "Certification as a Rationale for Voluntary Agreements," Cahiers de recherche CREATE 2011-2, CREATE.
    • Handle: RePEc:lvl:creacr:2011-2
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    File URL: https://www.create.ulaval.ca/sites/create.ulaval.ca/files/Publications/create2011-2.pdf
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    References listed on IDEAS

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    1. Simon Ashby & Swee-Hoon Chuah & Robert Hoffmann, 2004. "Industry Self-Regulation: A Game-Theoretic Typology of Strategic Voluntary Compliance," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 11(1), pages 91-106.
    2. Na Li Dawson & Kathleen Segerson, 2008. "Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets," Land Economics, University of Wisconsin Press, vol. 84(1), pages 97-114.
    3. Heyes, Anthony G., 2005. "A signaling motive for self-regulation in the shadow of coercion," Journal of Economics and Business, Elsevier, vol. 57(3), pages 238-246.
    4. 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.
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    Keywords

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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