Professional Documents
Culture Documents
à A policymaker faces two basic options when coming to a policy for a cleaner
environment:
3 to use Ú
¬ ¬
ë or induce firms to
participate in ͚M
Ú
3 m ÚÚÚ
where firms take action without prompting by regulatorsë
G Ú ^ Chemistry Industry Associations in the US UK Canada established
͚w programmes after a chemical leak in India
3 ?
M
Ú
where a regulator creates the conditions of an
agreement and attempts to recruit firmsë
G Ú m ¬ ¬ !
where listed chemicals were to be reduced by 33% in ^ 2 and 50% in ^ 5
à Úhe most common benefit is that V As are far more flexible especially
under Unilateral and Negotiated agreementsë which allow the firm to
take the least cost method of abatement
3
"
¬ for example regulation rather than Ús
the more flexible the regulatory instrument the lower the cost savings
¬¬
ü!"|"#
à Úhe firm faces a choice between a $6 outcome if they take a V Aë and an
? outcome if they reject/do not start a V Aë
] ·à ] à ] · Ú ] PÚ ] ] P Ú
à It is possible to see that even if no offer is made and there is no threat % ë a
V A may still arise due to the premium associated with marketing green goods
and the indirect benefits a V A is more likely to arise under no threat % ë if
an offer is made however as a subsidy increases the payoff for the firm
Ú ]Ú Ú Ú B S JCv
à Ëowever
until
p==^ where a V A will ALWAYS be taken:
]
à Environmental Stewardship:
3 ë #¬ ¬ '
More likely when concerned with individuals rather than large firms
à Market Incentives:
3 ͚
Ú
may pay a premium for environmentallyfriendly produce as
shown in the previous model Linked to the () where
higher income consumers become more environmentally aware ut green
consumer argument may not extend to intermediate/primary industries
3 Ú
Ú
Ú which ¬
¬¬ ¬¬ ¬$¬
3 ?
a firm may be in a "*" where it can reduce pollution
through innovation and ¬¬¬¬
¬ Ëowever if such technology was available then it suggests that
the firm systematically overlooks it prior to the threat of regulation
3 Carrots take the form of subsidies S in the modelë which increase the likelihood of
participating if =0 and/or there is no premium from green consumers
G Úhe problem with carrots is that they
firms may enter the industry in
order to receive the subsidies Also
Ú Úhe regulator may therefore find it too socially costly to generate the
funds
à Incentives should also take into account the possibility of *
" *¬¬ An incentive would work better if it was exempting a firm
from already existing regulation
à Incentives should also consider Ú
ÚÚ
&
Ú
Under
imperfect information regarding abatement costs:
3 Carraro and Siniscalo ^ ë create an adverse selection model where the regulator offers a
¬ ¬ to firms aimed at inducing firms to reveal their costs Ëowever this gives
rise to Ú
and a
Ú
for some firms which impact on
the welfare effects of a V A
à Any of the V A types could appear due "$M
to Ú
Ú or that Legislators
attempting to shape regulatory delegate too much power to
decisionsë: regulators
à ?!Ú
: à 9 Ú
:
à ne of the main criticisms of V As is that they are $ ¬
à Úhe probability of regulation or the magnitude of subsidies determine the
Úin which it does not voluntarily abateë
"$
3 Úhe relative bargaining power of the two parties If the background threat is high for
example already in placeë then the regulator has high bargaining power and abatement
is likely to be high the flipside for low background threat
à ) &* * make a number of stylised facts about V As:
3 M
Ú
3 $
! Ú
and firms are rewarded for good
environmental results Firms respond to this investor pressure SEE IL SILL
à Alberni and Segerson 2002ë note that the evidence is largely mixed however due to
differences in methodologies and definitions
3 Úhey find that listed chemical emissions fell by 2% under the target but a significant
improvement on the reductions of nonlisted chemicals 22%ë
3 Úherefore
Ú &
M
argal
and Wheeler ^ ë show ë "
3 Úhe agreement included !+ ¬ ,,+ ¬
¬ however +
Ú
Ú& &
&
3 Although the target would be met it wouldve been met anyway due to the restructuring of
industry postreunification As this abatement was ͚baseline the cost was likely to be low
Ú
M
3 Úherefore
Ëowever it did
play a longerterm role in establishing a dialogue between industry and Government