Abstract
Instances of corporate voluntary environmental investments have been rising in recent years. Motivations for such activities include corporate image building, regulatory preemption, and production cost savings. While some of these investments arise from industry attempts to set environmental standards where none currently exist, many investments seem to be aimed at reducing the costs of complying with existing regulations. Using a simple game-theoretic model, we investigate firm motivations for, and welfare consequences of, these types of voluntary investments by focusing on the role regulatory enforcement might play. We find that such investments unambiguously increase when an enforcement regulator acts as a Stackelberg follower (a regulatory structure we refer to as responsive regulation) in setting its monitoring and enforcement strategy. These additional investments may be socially undesirable, necessitating a restructuring of non-compliance penalties.
Similar content being viewed by others
References
G. S. Amacher A. S. Malik (1996) ArticleTitle‘Bargaining in Environmental Regulation and the Ideal Regulator’ Journal of Environmental Economics and Management 30 233–251 Occurrence Handle10.1006/jeem.1996.0016
G. S. Amacher A. S. Malik (1998) ArticleTitle‘‘Instrument Choice When Regulators and Firms Bargain’’ Journal of Environmental Economics and Management 35 225–241 Occurrence Handle10.1006/jeem.1998.1032
S. Arora S. Gangopadhyay (1995) ArticleTitle‘Toward a Theoretical Model of Emissions Control’ Journal of Economic Behavior and Organization 28 289–309 Occurrence Handle10.1016/0167-2681(95)00037-2
J. A. Brander B. J. Spencer (1983) ArticleTitle‘Strategic Commitment with R&D: The Symmetric Case’ The Bell Journal of Economics 14 225–235
Environmental Protection Agency (EPA) (2000), ‘Incentives for Self Policing: Discovery, Disclosure, Correction, and Prevention of Violations’, FRL 6576-3, May.
Environmental Protection Agency (EPA) (1998a), ‘Audit Policy: Incentives for Self Policing’, Office of Enforcement and Compliance Assurance, EPA 300-N-98-003, March.
Environmental Protection Agency (EPA) (1998b), ‘Enforcement and Compliance Assurance Accomplishments Report’, Office of Enforcement and Compliance Assurance, FY 1997, EPA 300-R-98-003, July.
Environmental Protection Agency (EPA) (1998c), ‘New England StarTrack Program Guidance Documents 1997/98 Draft’, Region 1, New England, U.S. EPA, August.
I. Henriques P. Sadorsky (1996) ArticleTitle‘The Determinants of an Environmentally Responsive Firm: An Empirical Approach’ The Journal of Environmental Economics and Management 30 381–395
A. N. Kleit M. A. Pierce C. R. Hill (1998) ArticleTitle‘Environmental Protection, Agency Motivations, and Rent Extraction: The Regulation of Water Pollution in Louisiana’ Journal of Regulatory Economics 13 121–137 Occurrence Handle10.1023/A:1008056615258
T. P. Lyon J. W. Maxwell (2004) Corporate Environmentalism and Public Policy. Cambridge University Press Cambridge, UK
J. W. Maxwell T. P. Lyon S. Hackett (2000) ArticleTitle‘Self Regulation and Social Welfare: The Political Economy of Corporate Environmental ism’ Journal of Law and Economics 43 583–618 Occurrence Handle10.1086/467466
M. E. Porter C. Linde Particlevan der (1985) ArticleTitle‘Toward a New Conception of the Environment Competitiveness Relationship’ Journal of Economic Perspectives 9 97–118
K. Segerson T. J. Miceli (1998) ArticleTitle‘Voluntary Environmental Agreements: Good or Sad News for Environmental Protection?’ Journal of Environmental Economics and Management 36 109–130 Occurrence Handle10.1006/jeem.1998.1040
K. Segerson N. Li (2000) ‘Voluntary Approaches to Environmental Regulation’ H. Polmer T. Tietenberg (Eds) The International Yearbook of Environmental and Resource Economics Kluwer Dordrecht
Sullivan, T. F. P., ed. (1995), Environmental Law Handbook, 13th edn. Government Institutes, Inc.
J. K. Stranlund (1997) ArticleTitle‘Public Technological Aid to Support Compliance to Environmental Standards’ Journal of Environmental Economics and Management 34 228–239 Occurrence Handle10.1006/jeem.1997.1014
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Maxwell, J.W., Decker, C.S. Voluntary Environmental Investment and Responsive Regulation. Environ Resource Econ 33, 425–439 (2006). https://doi.org/10.1007/s10640-005-4992-z
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/s10640-005-4992-z