Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets

Dawson, Na Li; Segerson, Kathleen
February 2008
Land Economics;Feb2008, Vol. 84 Issue 1, p97
Academic Journal
We consider a policy environment in which an entire industry is faced with possible imposition of an emissions tax if environmental goals are not met voluntarily. We develop a multiple-firm model of pollution abatement in this context. Using the concept of a self-enforcing equilibrium, we examine the free-riding incentive of individual firms and its impact on the viability of the voluntary approach. We find that, despite the free-riding problem, a sub-group of firms have an incentive to participate in the VA. The VA is strictly preferred by the industry as a whole, although it is not cost-minimizing.


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