Environmental Policy and Corporate Behaviour

Environmental Policy and Corporate Behaviour

Edited by Nick Johnstone

For the last 30 years, analysis of the inner workings of the firm has been largely absent from economic assessments of environmental policy. Recent work has highlighted the importance of understanding a firm’s commercial motivations, decision-making procedures and organizational structure when designing and implementing public environmental policies. Environmental Policy and Corporate Behaviour responds to this need, investigating the many internal challenges faced by firms seeking to implement new policies and achieve significant and long-lasting environmental progress.

Chapter 1: Public Environmental Policy and Corporate Behaviour: Project Background, Overview of the Data and Summary Results

Nick Johnstone, Céline Serravalle, Pascale Scapecchi and Julien Labonne

Subjects: business and management, management and sustainability, economics and finance, environmental economics, public sector economics, environment, environmental economics, environmental management

Extract

Nick Johnstone, Céline Serravalle, Pascale Scapecchi and Julien Labonne I. INTRODUCTION Much of the economic analysis of environmental policy can be summarized under two principles: (1) many aspects of the natural environment are public goods, and as such private economic agents will not behave in a manner which is consistent with social welfare maximization in the absence of public intervention; and (2) the use of market-based instruments is a more economically efficient means of achieving a given environmental objective since they encourage an efficient allocation of resources and effort and provide stronger dynamic incentives for environmentally beneficial technological innovation. However, the treatment of the inner workings of the firm is largely absent from the vast body of literature in support of these two principles. Nonetheless, recent work (DeCanio 1998; Gabel and Sinclair-Desgagné 2001) has highlighted the importance of an understanding of the firm’s commercial motivations, decision-making procedures and organizational structure when designing and implementing public environmental policies. Issues such as the allocation of responsibilities for environmental matters within the firm, the use of different accounting and investment appraisal procedures, the implementation of environmental management systems, and other managerial responses are likely to affect how firms respond to different environmental policy measures. As Stiglitz (1991) has pointed out, ‘most production in modern economies occurs within organisations, and this production is regulated only to a limited extent by prices . . . These observations make it clear that if economists wish to understand how resources in modern...

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