IDEAS home Printed from https://ideas.repec.org/p/pab/wpaper/09.02.html
   My bibliography  Save this paper

Public Disclosure Programs vs. Traditional Approaches for Environmental Regulation: Green Goodwill and the Policies of the Firm

Author

Listed:
  • Francisco J. André

    () (Department of Economics, Universidad Pablo de Olavide)

  • Abderrahmane Sokri

    () (DRDC Centre for Operational Research and Analysis, Ottawa, Canada)

  • Georges Zaccour

    () (Chair in Game Theory and Management and GERAD, HEC Montréal, Canada)

Abstract

A Public Disclosure Program (PDP) is compared to a traditional environmental regulation (exemplified by a tax/subsidy) in a simple dynamic framework. A PDP aims at revealing the environmental record of firms to the public. This information affects its image (goodwill or brand equity), and ultimately its profit. In our model, this impact is endogenous, i.e., a firm polluting less than its prescribed target would win consumer's sympathy and raises its goodwill, whereas it is the other way around when the firm exceeds its emissions quota. The evolution of this goodwill is assumed to depend also on green activities or advertising expenditures. Within this framework, we analyse how a PDP affects the firm's optimal policies regarding emissions, pricing and advertising as compared to a traditional regulation. We show that advertising acts as a complementary device to pricing and that emissions are increasing in goodwill. We also conclude that the effects of a PDP are more pronounced than those of traditional instruments for firms with a high goodwill. Moreover, we study under which conditions a PDP may be profit improving and we connect this issue to the possibility that a PDP can induce firms to overcomply with the standard. The numerical value of the emission target is rather innocuous in a market-based setting but it turns to be a crucial variable in the presence of a PDP. The theoretical results are complemented with a numerical illustration.

Suggested Citation

  • Francisco J. André & Abderrahmane Sokri & Georges Zaccour, 2009. "Public Disclosure Programs vs. Traditional Approaches for Environmental Regulation: Green Goodwill and the Policies of the Firm," Working Papers 09.02, Universidad Pablo de Olavide, Department of Economics.
  • Handle: RePEc:pab:wpaper:09.02
    as

    Download full text from publisher

    File URL: http://www.upo.es/serv/bib/wps/econ0902.pdf
    File Function: First version, 2009
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    2. Shimshack, Jay P. & Ward, Michael B., 2005. "Regulator reputation, enforcement, and environmental compliance," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 519-540, November.
    3. Tommy Lundgren, 2003. "A Real Options Approach to Abatement Investments and Green Goodwill," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(1), pages 17-31, May.
    4. Heyes, Anthony G., 1996. "Cutting environmental penalties to protect the environment," Journal of Public Economics, Elsevier, vol. 60(2), pages 251-265, May.
    5. Kennedy Peter W. & Laplante Benoit & Maxwell John, 1994. "Pollution Policy: the Role for Publicly Provided Information," Journal of Environmental Economics and Management, Elsevier, vol. 26(1), pages 31-43, January.
    6. Mark Cohen & V. Santhakumar, 2007. "Information Disclosure as Environmental Regulation: A Theoretical Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(3), pages 599-620, July.
    7. Laplante, Benoit & Rilstone, Paul, 1996. "Environmental Inspections and Emissions of the Pulp and Paper Industry in Quebec," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 19-36, July.
    8. Kleit, Andrew N & Pierce, Meredith A & Hill, R Carter, 1998. "Environmental Protection, Agency Motivations, and Rent Extraction: The Regulation of Water Pollution in Louisiana," Journal of Regulatory Economics, Springer, vol. 13(2), pages 121-137, March.
    9. Badrinath, S G & Bolster, Paul J, 1996. "The Role of Market Forces in EPA Enforcement Activity," Journal of Regulatory Economics, Springer, vol. 10(2), pages 165-181, September.
    10. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1998. "Can capital markets create incentives for pollution control?," Ecological Economics, Elsevier, vol. 26(1), pages 31-41, July.
    11. Magat, Wesley A & Viscusi, W Kip, 1990. "Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 331-360, October.
    12. Jeffrey R. Blend & Eileen O. van Ravenswaay, 1999. "Measuring Consumer Demand for Ecolabeled Apples," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1072-1077.
    13. Arguedas, Carmen, 2005. "Bargaining in environmental regulation revisited," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 422-433, September.
    14. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
    15. Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
    16. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
    17. Heyes, Anthony, 2000. "Implementing Environmental Regulation: Enforcement and Compliance," Journal of Regulatory Economics, Springer, vol. 17(2), pages 107-129, March.
    18. Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January.
    19. Kennedy, P. & Laplante, B. & Maxwell, J., 1990. "Pollution Policy: The Role of Publicly Provided Information," Papers 9021, Laval - Recherche en Energie.
    20. Arora, Seema & Gangopadhyay, Shubhashis, 1995. "Toward a theoretical model of voluntary overcompliance," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 289-309, December.
    21. Foulon, Jerome & Lanoie, Paul & Laplante, Benoit, 2002. "Incentives for Pollution Control: Regulation or Information?," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 169-187, July.
    22. Bengt Kristrom & Tommy Lundgren, 2003. "Abatement investments and green goodwill," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1915-1921.
    23. Gray, Wayne B. & Deily, Mary E., 1996. "Compliance and Enforcement: Air Pollution Regulation in the U.S. Steel Industry," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 96-111, July.
    24. Tom Tietenberg, 1998. "Disclosure Strategies for Pollution Control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 587-602, April.
    25. Harford, Jon D. & Harrington, Winston, 1991. "A reconsideration of enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 45(3), pages 391-395, August.
    26. Gustav Feichtinger & Richard F. Hartl & Suresh P. Sethi, 1994. "Dynamic Optimal Control Models in Advertising: Recent Developments," Management Science, INFORMS, vol. 40(2), pages 195-226, February.
    27. Caputo, Michael R., 1990. "How to do comparative dynamics on the back of an envelope in optimal control theory," Journal of Economic Dynamics and Control, Elsevier, vol. 14(3-4), pages 655-683, October.
    28. Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu & Wang, Hua, 2001. "Inspections, pollution prices, and environmental performance: evidence from China," Ecological Economics, Elsevier, vol. 36(3), pages 487-498, March.
    29. Nadeau, Louis W., 1997. "EPA Effectiveness at Reducing the Duration of Plant-Level Noncompliance," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 54-78, September.
    30. Stafford, Sarah L., 2002. "The Effect of Punishment on Firm Compliance with Hazardous Waste Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 290-308, September.
    31. Dion, Catherine & Lanoie, Paul & Laplante, Benoit, 1998. "Monitoring of Pollution Regulation: Do Local Conditions Matter?," Journal of Regulatory Economics, Springer, vol. 13(1), pages 5-18, January.
    32. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. André, Francisco J., 2015. "Strategic Effects and the Porter Hypothesis," MPRA Paper 62237, University Library of Munich, Germany.

    More about this item

    Keywords

    Market-based Environmental Regulation; Public Disclosure Program; Pricing; Advertising; Goodwill; Optimal Control.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pab:wpaper:09.02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publicación Digital - UPO). General contact details of provider: http://edirc.repec.org/data/deupoes.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.