Toward a theoretical model of voluntary overcompliance

We explain why some firms voluntarily overcomply with environmental regulation. In our model all consumers value environmental quality but differ in their willingness to pay which depends on their income levels. Publicly available information on environmental performance of firms enables consumers t...

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Bibliographic Details
Published in:Journal of economic behavior & organization 1995-12, Vol.28 (3), p.289-309
Main Authors: Arora, Seema, Gangopadhyay, Shubhashis
Format: Article
Language:English
Subjects:
Compliance
Consumer preferences
Economic models
Economic theory
Enterprises
Environmental policy
Environmental regulations
Game theory
Marketing
Price competition
Studies
Technology
Voluntary environmental regulation
Voluntary overcompliance
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Summary:We explain why some firms voluntarily overcomply with environmental regulation. In our model all consumers value environmental quality but differ in their willingness to pay which depends on their income levels. Publicly available information on environmental performance of firms enables consumers to identify clean firms. Firms participate in a two-stage duopoly game where they first choose their levels of cleaning technology and next engage in price competition. The market gets segmented by income levels. A minimum standard binding on the dirty firm has the effect of improving the performance of the cleaner firm. A subsidy obtains the same competitive outcome.
ISSN:0167-2681
1879-1751
DOI:10.1016/0167-2681(95)00037-2