Institute for Social, Behavioral, and Economic Research

Increasing social concerns over the environmental externalities associated with business activities are pushing firms to identify activities that create economic value with less environmental impact and to become more eco-efficient. However, this task has proven challenging because there is no systematic methodology to integrate undesirable outputs, such as emissions, in the calculation of economic or productive efficiency. In this paper, we develop a methodology based on the nonparametric frontier approach to measure corporate eco-efficiency, and to compare it to productive efficiency. Our eco-efficiency model rectifies several problems encountered in existing approaches. Our methodology allows us to calculate, for each firm, the reduction in emissions necessary to attain eco-efficiency. In addition, our methodology measures changes in efficiency attributed to undesirable outputs. We apply our methodology to data from 84 U.S. electric utilities in 2007. Our analysis demonstrates how incorporating undesirable outputs in the measurement of efficiency can impact the distance of the firm to the best industry practice. We describe future research directions and potential applications of the methodology for managers and policymakers.

This document provides a summary of the results of a survey on Environmental Management Practices (EMP) conducted by the University of California at Santa Barbara during October and November 2003. The survey was sent to 3255 facilities in 8 industrial sectors: pulp, paper and paperboard mills, chemical and allied products, refining, primary metals, machinery, electronics /electrical, automotive, and utilities. The survey yielded 562 responses, which constitutes a 17.2% response rate. This summary includes a general description of the sample, a profile of the respondents, and summary statistics of facilities' environmental management practices, relations with stakeholders, and environmental performance measures. In addition, we report the factors that respondents noted were influencing them to improve their environmental performance and adopt particular environmental management practices. In many cases, these results are categorized by industry to facilitate comparisons.

The environmental management practices we inquired about include the adoption of an environmental policy and its communication, the number of internal and external audits performed at the facility, the proportion of employees in various departments receiving environmental training, "green purchasing" policies, the adoption of the ISO 14001 international standard, participation in industry and governments voluntary programs, and solicitation of opinions from environmental non-governmental organizations (NGOs).

Overall, we identified important differences between industrial sectors in terms of the level of adoption of these environmental management practices. Companies can employ these survey results to benchmark their practices to facilities in their own industry as well as to other industries. In addition, government, NGOs, and local communities can employ this information to learn the prevalence of different environmental management practices across various industries, and to better understand how firms are motivated - and influenced - to adopt environmental management practices.

Eco-labeling signals that a product has been eco-certified. While there is increasing use of eco-labeling practices, there is still little understanding of the conditions under which eco-labels can command price premiums. In this paper, we argue that the certification of environmental practices by a third party should be analyzed as a strategy distinct from although related to the advertisement of the eco-certification through a label posted on the product. By assessing eco-labeling and eco-certification strategies separately, we are able to identify benefits associated with the certification process independently from those associated with the actual label. More specifically, we argue in the context of the wine industry that eco-certification can provide benefits, such as improved reputation in the industry or increased product quality, which can lead to a price premium without the need to use the eco-label. We estimate this price premium of wine due to the eco-certification of grapes using 13,400 observations of wine price, quality rating, varietals, vintage, and number of bottles produced, for the period 1998-2005. Overall, certifying wine increases the price by 13%, yet including an eco-label reduces the price by 20%. This result confirms the negative connotation associated by consumers with organic wine. The price premium of this luxury good due to certification acts independently from its label, a confounding result not previously demonstrated by related literature.

This paper analyzes the factors that explain the international diffusion of voluntary international management standards. We argue that to understand the diffusion of international standards we need to define a model that includes interactions between standards as well as interactions between standards and their institutional environment. We present two opposite views explaining how the previous diffusion of management standards facilitates or hampers the adoption of new management standards. We test a comprehensive model of diffusion of international environmental management standards within the chemical industry using a panel of 113 different countries during the period 2000 to 2003. Our results show that the previous experience of businesses in voluntary standards such as the Chemical Industry’s Responsible Care program or ISO 9000, government commitment towards Environmental Management Systems Standards, and the level of activity of international non-governmental organizations in the country of adoption, impact positively on the adoption of ISO 14001 by chemical firms. Unlike previous studies that focused mostly on cross industry analyses, we do not find trade related factors significant while explaining adoption in the chemical industry. Our results differ, therefore from previous research and highlight the need to isolate industry effects to understand the diffusion of international standards.

Voluntary programs are now widely used by governments and other actors to improve the environmental performance of firms beyond regulatory compliance. However, it is important to understand the effectiveness and limitations of these voluntary approaches. This paper investigates the rationale for firms to ‘comply’ with or ‘resist’ the mandate of their customers to adopt the international certified management standard (CMS) ISO 14001 in the North American automotive industry. We argue that the effectiveness of such a mandate will vary according to the characteristics of the relationship between suppliers and customers. We contrast and test hypotheses based on both transaction costs economics and signaling theories to suggest that both suppliers marked by a dependent relationship with their customers as well as those marked by a distant relationship with their customers have incentives to comply with the requests of their customers but through different mechanisms. Our results, based on the analysis of the characteristics of 3,152 automotive suppliers located in the US, Canada and Mexico over the 2000-2003 period, indicate that suppliers with highly specialized assets as well as younger suppliers and those reporting to the Toxic Release Inventory are more likely to adopt the certified management standard ISO 14001.

A "third wave" of environmental policy has recently emerged that emphasizes information provision as an integral part of the risk mitigation strategy. While theory suggests that information programs may correct market failures and improve welfare, the empirical effectiveness of these programs remains largely undetermined. We show that mandatory information disclosure programs in the electricity industry achieve stated policy goals. We find that the average proportion of fossil fuels decreases and the average proportion of clean fuels increases in response to disclosure programs. However, the programs also produce unintended consequences. Customer composition and pre-existing fuel mix significantly affect program response, suggesting that effective information disclosure policies may not be efficient.

Within the context of environmental voluntary agreements (VAs), this paper analyzes how free riding affects the effectiveness of collective corporate political strategies that aim at shaping government policy. We demonstrate that substantive cooperative strategies are more likely to be pursued by firms that enter a VA at its initiation while free riding or symbolic cooperation is more likely to be adopted by late joiners. We demonstrate that late joiners and early joiners within VAs adopt different cooperative strategies because they face different institutional pressures. We also find that late joiners that cooperate only symbolically may endanger the overall effectiveness of a VA. Our analysis is based on the strategies of firms participating in the Climate Challenge Program established in 1995 by the U.S. Department of Energy (DOE) and the representatives of the national electric utilities to reduce greenhouse gas emissions.

This paper investigates the determinants of the early adoption of the international environmental management standard ISO 14001 using a panel of 84 countries from 1996 to 2002. It analyzes the relationship between firms’ decisions to adopt international management standards and institutional factors. The analysis emphasizes that, in the case of an emerging standard, the potential lack of consensus within the regulatory/institutional environment concerning the value of a new standard could send mixed signals to firms about the standard. The results show that in the early phase of adoption, regulative and normative forces within the institutional environment can work against each other. This study contributes to the institutional theory perspective by offering a more complex specification of the neo-institutional model where institutional forces can compete with each other.

This paper analyzes how economic deregulation impacts resource reconfiguration in the electric utility industry. We argue that to understand strategic change in this industry, we need to understand how development and deployment of a firm's resources reflects path dependencies that nonmarket actors impose on firms. We find evidence that the deregulation introduced to this historically staid industry has stimulated environmental differentiation strategies for incumbent firms. Consistent with theories that suggest differentiation is most likely to appear where its point of uniqueness is valued by customers, utilities engaged in differentiation if they served states whose populace exhibited a higher level of environmental sensitivity. The tendency for firms to differentiate is lessened if they are relatively more dependent on coal-fired generation or relatively more efficient. In both of these cases, the variables are associated with lower operating costs, in turn demonstrating that firms sort themselves into either differentiation or low cost strategies as their environments reflect more market-like segmentation in a deregulated world. This paper contributes to the resource based view of the firm by highlighting the importance of the nonmarket context in which resources are developed and leveraged.

This paper extends transaction costs economics to analyze relationships between firms and regulatory agencies. It compares the economic efficiency of firm-agency governance structures for dealing with pollution reduction. The transaction costs of three ideal type governance structures are analyzed: command and control regulation, market based mechanisms, and negotiated agreements. We propose that the choice of governance structure will depend on the strategies firms are pursuing given their transaction attributes and market opportunities.