Voluntary pollution abatement and regulation in the presence of a green market
We present a model in which firms voluntarily abate emissions in a market that values environmental quality such that firms can charge a premium for goods that are environmentally friendly. Our results establish conditions under which mandatory abatement crowds out voluntary abatement, or, alternatively, provides an incentive for firms to increase their level of voluntary abatement in order to maintain product differentiation. In addition, we identify cases under which firms that do not abate voluntarily would support mandatory abatement if they are able to collectively pass off (at least part of) the costs of abatement to consumers. Our model predicts that regulatory policies that ignore voluntary abatement are likely to over-regulate non-abating firms compared to the level of regulation that accounts for voluntary abatement if consumer income levels in the green market are relatively high. If consumer income levels in the green market are relatively low, regulation may be ineffective in improving overall environmental quality.
|Date of creation:||29 Jul 2010|
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Web page: https://mpra.ub.uni-muenchen.de
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- Na Li Dawson & Kathleen Segerson, 2008.
"Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets,"
University of Wisconsin Press, vol. 84(1), pages 97-114.
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- Wu, JunJie & Babcock, Bruce, 1999. "The Relative Efficiency of Voluntary vs Mandatory Environmental Regulation," ISU General Staff Papers 199909010700001199, Iowa State University, Department of Economics.
- Khanna, Madhu & Damon, Lisa A., 1999. "EPA's Voluntary 33/50 Program: Impact on Toxic Releases and Economic Performance of Firms," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 1-25, January.
- Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
- Daniel W. Elfenbein & Brian McManus, 2010. "A Greater Price for a Greater Good? Evidence That Consumers Pay More for Charity-Linked Products," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 28-60, May. Full references (including those not matched with items on IDEAS)
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