Maxwell, John W. Lyon, Thomas Peyton Hackett, Steven Curtis
Year of Publication:
Nota di Lavoro, Fondazione Eni Enrico Mattei 55.1998
We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political "entry" is costly for consumer, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by over-investing 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.
Regulation Environment Self-regulation Political Economy