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Reputation and the Control of Pollution

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  • Arthur Caplan

Abstract

This paper investigates the effectiveness of reputation in inducing a polluting firm to selfregulate its emissions when consumers have imperfect information. In particular, we ask to what extent must consumers reward and punish the firm before it chooses self-regulation as its dominant strategy? We find that if payoffs in the stage game are such that both the consumer and the polluting firm have beliefs that are consistent with each others’ behaviors, then the firm has a positive probability of playing clean in each period of a finite game. Further, we find that a weak reward/punishment scheme may have an adverse effect on the environment, and that there are both environmental and welfare gains associated with strengthening the scheme.

Suggested Citation

  • Arthur Caplan, 2002. "Reputation and the Control of Pollution," Working Papers 2002-24, Utah State University, Department of Economics.
  • Handle: RePEc:usu:wpaper:2002-24
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    References listed on IDEAS

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    2. Juan Pineiro-Chousa & Marcos Vizcaíno-González & María Ángeles López-Cabarcos & Noelia Romero-Castro, 2017. "Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-15, March.
    3. Manello, Alessandro, 2017. "Productivity growth, environmental regulation and win–win opportunities: The case of chemical industry in Italy and Germany," European Journal of Operational Research, Elsevier, vol. 262(2), pages 733-743.

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    More about this item

    Keywords

    reputation; sequential equilibrium; self-regulation; pollution;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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