Reputation and the control of pollution

Abstract

Abstract:This paper investigates the effectiveness of reputation in inducing a polluting firm to self-regulate 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.JEL Classification: D21, D62, L51

Rival private governance networks: Competing to define the rules of sustainability performance

“…Motivations for self regulation have been traced back to preemption of impending legislation (Maxwell et al, 2000), or to improving legitimacy with stakeholders (Caplan, 2003;King et al, 2002;Press and Mazmanian, 2006). This view is more adequate to describe intra-sector collectivizing than the multiple cross-sector governance efforts emerging in response to sustainability challenges.…”

Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach

“…Finally, we have reviewed the concerns regarding the reliability of voluntary environmental disclosures, which signal a need for both enhanced mandatory reporting requirements and improved enforcement [13], and also for assurance of CSR information. Consequently, policy makers could also find our framework useful to analyse the suitability of incentives for environmental disclosures, or the need for a mandatory disclosure, to promote corporate environmental behaviour, which might imply a less active and costly role for the regulating authorities [3]. More concretely, national governments across the European Union that are having to transpose to their regulatory framework in accordance with the recent Directive on non-financial information disclosure, need to carefully analyse the implications of voluntary and mandatory reporting as well as the role of assurance, and could base such analysis on this paper's contributions.…”

“…In this sense, Arora and Gangopadhyay [16] conclude that the public image of a company is a key driving force of voluntary over-compliance with environmental regulations. Additionally, Caplan [3] considers that under certain circumstances polluting firms self-regulate by internalizing the forward effect of their environmental reputation, and Banerjee and Shogren [17] advance that firms concerned about their reputation would exert at least the optimal level of effort in environmental protection. Johnstone and Labonne [11] consider that the environmental management area is characterized by strong information asymmetries, as its quality is not readily observable.…”

“…On the other hand, there is a growing political and academic interest in the use of information as a quasi-regulatory mechanism and its relation to organizational reputation [3][4][5], with the recent case of Volkswagen being a prominent one [6]. In this context, companies must be prepared to increase their reporting of non-financial information and to manage the impact of this information provision on their reputation.…”

Who Acquires Toxic Targets?

“…In this study, we investigate the consequences of environmental violations in the mergers and acquisitions (M&A) markets for a number of reasons. Environmental misconduct gives rise to significant negative externalities borne by societies (Caplan ). According to Karpoff and Lott (:757), “optimal penalties for corporate [misconduct] require that firms face expected penalties equal to the total social costs of the [misconduct].” It is therefore important to study the economic penalties for corporate misconduct imposed by market forces, in addition to the legal penalties, in order to gain a holistic understanding of the penalties and deterrents facing firms (Alexander ).…”