Browsing by Author "Potoski, Matthew"

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Green Clubs and Voluntary Governance: ISO 14001 and Firms' Regulatory Compliance. Revised version
(2003) Potoski, Matthew; Prakash, Aseem
"Voluntary programs have become widespread tools for governments and non-governmental actors looking to shape industry behavior. Voluntary programs can be conceptualized as club goods that provide non-rival but potentially excludable benefits to members. For firms, the value of joining an effective green club over taking the same actions unilaterally is to appropriate the club's positive reputation with stakeholders. Our analysis of about 3,800 US facilities indicates that joining ISO 14001, an important non-governmental voluntary program, improves facilities' compliance with government regulations. We conjecture that ISO 14001 's efficacy stems from its relatively open membership standards and its focus on management systems that provide participants with private benefits while addressing the root causes of regulatory non-compliance. Many government sponsored voluntary programs may be designed to fail because their rigid standards exclude all but highly compliant firms and their focus on performance standards ignores key causes of regulatory non-compliance."
The Political Economy of Voluntary Regulation: An Empirical Examination of Cross-National Variations in ISO 14001 Adoption
(2002) Prakash, Aseem; Potoski, Matthew
"ISO 14001 is an international voluntary environmental code sponsored by the International Organization for Standardization. Firms that join ISO 14001 establish internal management systems that govern the environmental components of their operations. The objective of ISO 14001 is to ensure firms comply with government environmental regulations while encouraging them to go beyond the law's requirements. Although widely touted as beneficial to regulators, firms, and consumers, ISO 14001 adoption rates have varied across countries. This paper examines how country-level factors in firms' political and economic contexts influence firms' incentives to join ISO 14001. Analyses of ISO 14001 adoption rates across 67 countries indicate that firms are more likely to join ISO 14001 when governments flexibly enforce environmental regulations with a less adversarial and litigious stance towards firms, and when consumers want mechanisms for identifying environmentally progressive firms. In appropriate contexts, ISO 14001 provides an important information benefit for firms, regulators and consumers, one that helps each group solve transaction cost problems."
The Regulation Dilemma: Cooperation and Conflict in Environmental Governance
(2002) Potoski, Matthew; Prakash, Aseem
"Across the United States and around the world, businesses have joined voluntary environmental codes proposed by governments and nonstate actors. Many codes require firms to establish internal environmental management systems that seek to improve firms' environmental performance and compliance with mandatory regulations. At the same time, governments are also experimenting with programs that provide incentives for business to self-policies their regulatory compliance, and promptly report and correct regulatory violations. In light of these two trends, this paper examines how governments' approach to regulatory enforcement can influence firms' incentives to comply with mandatory environmental laws and to join voluntary codes that could take them beyond compliance. Our inquiry shows that cooperative regulatory enforcement, in which firms self-police their environmental operations and governments provide regulatory relief for voluntarily disclosed violations, yields optimal, 'win-win' outcomes only when both sides cooperate. If firms are likely to evade compliance, governments are better off adopting a deterrence approach. And, if governments insist on rigidly interpreting and strictly enforcing the law, firms may have strong incentives to evade regulations and/or not join voluntary codes. Cooperation, though not easy, is possible if both sides can credibly signal that they will forgo opportunism."