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Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism

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Type: Working Paper
Author: Maxwell, John W.; Lyon, Thomas P.; Hackett, Steven C.
Date: 1999
Agency: Workshop in Political Theory and Policy Analysis, Indiana University; Bloomington, IN
Series: W99-26
URI: http://hdl.handle.net/10535/4293
Sector: Theory
Region:
Subject(s): regulation--theory
deterrence
political economy
self-governance
pollution
Workshop
pollution control--theory
cost
Abstract: "We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political 'entry' is costly for consumers, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by overinvesting to raise the rival's welfare in the event of entry. Empirical evidence on releases of toxic chemicals shows that an increased threat of regulation (as proxied by increased membership in conservation groups) indeed induces firms to reduce toxic releases. We establish conditions under which self-regulation, if it occurs, is a Pareto improvement once costs of influencing policy are included."

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