We present an economic model of greenwash, in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We show that disclosures increase when the likelihood of good environmental performance is lower. Firms with intermediate levels of environmental performance are more likely to engage in greenwash. Under certain conditions, NGO punishment of greenwash induces the firm to become less rather than more forthcoming about its environmental performance. We also show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems.
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.
We present an economic model of greenwash, in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We show that disclosures increase when the likelihood of good environmental performance is lower. Firms with intermediate levels of environmental performance are more likely to engage in greenwash. Under certain conditions, NGO punishment of greenwash induces the firm to become less rather than more forthcoming about its environmental performance. We also show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems.
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.
We survey the growing theoretical literature on the motives for and welfare effects of corporate greening. We show how both market and political forces are making environmental CSR profitable, and we also discuss morally-motivated or altruistic CSR. Welfare effects of CSR are subtle and situation-contingent, and there is no guarantee that CSR enhances social welfare. We identify numerous areas in which additional theoretical work is needed.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.