Green Alliances: Are They Beneficial when Regulated Firms are Asymmetric?
Start Date
8-4-2022 4:00 PM
End Date
8-4-2022 4:15 PM
Location
Breakout Session B: Business & Economics
CASB 104Document Type
Event
Abstract
Environmental groups (EGs) often collaborate with polluting firms to help them reduce their carbon footprint and, generally, to improve their environmental practices. One prominent example is the collaboration between McDonald’s and the Environmental Defense Fund which reduced restaurant waste by 30%, recycled 1 million tons of corrugated boxes, and eliminated over 300 million pounds of packaging in the decade following the partnership. Much of the literature on the impact of EGs has centered around four categories: (1) EGs take a confrontational approach through negative advertising campaigns and boycotts, (2) EGs invest in campaigns to increase consumers’ environmental awareness of the goods firms offer, (3) EGs use a lobbying approach for or against projects with environmental impacts, and (4) EGs provide green certificates to indicate certain environmental attributes of the good. In this paper, we build on existing literature and analyze the collaboration between an EG and polluting firms when the firms are asymmetric in their abatement (technology that reduces emissions) costs. We use a model with four stages: Stage 1. The EG chooses a collaboration level with each firm. Stage 2. Each firm, knowing the support they receive from the EG, chooses their abatement level. Stage 3. The regulator, knowing the abatement investment, sets the emission fee to maximize social welfare. Stage 4. Firms independently and simultaneously compete in the market by choosing their output levels (abatement and payment of the emission fee occurs). We find that, as firms become more asymmetric in their abatement costs, the EG collaborates more with the firm suffering from an abatement cost disadvantage. However, this additional collaboration does not overcome firms' cost asymmetry, producing an overall decrease in total abatement and an increase in total emissions. We also evaluate the welfare effects of introducing an EG and/or a regulator, finding that the regulator generally yields larger welfare gains (from environmental regulation) than the EG when neither are present. Unlike previous studies, we show that the welfare benefit from a second agent (either the EG or regulator) is, under most settings, largest when firms are more asymmetric in their abatement costs. *Strandholm thanks the University of South Carolina Upstate Office of Sponsored Awards and Research Support for partial funding of the project through the Scholarly Course Reallocation Program under the title, “Picking green teams: how environmental groups form alliances within a market.”
Green Alliances: Are They Beneficial when Regulated Firms are Asymmetric?
Breakout Session B: Business & Economics
CASB 104Environmental groups (EGs) often collaborate with polluting firms to help them reduce their carbon footprint and, generally, to improve their environmental practices. One prominent example is the collaboration between McDonald’s and the Environmental Defense Fund which reduced restaurant waste by 30%, recycled 1 million tons of corrugated boxes, and eliminated over 300 million pounds of packaging in the decade following the partnership. Much of the literature on the impact of EGs has centered around four categories: (1) EGs take a confrontational approach through negative advertising campaigns and boycotts, (2) EGs invest in campaigns to increase consumers’ environmental awareness of the goods firms offer, (3) EGs use a lobbying approach for or against projects with environmental impacts, and (4) EGs provide green certificates to indicate certain environmental attributes of the good. In this paper, we build on existing literature and analyze the collaboration between an EG and polluting firms when the firms are asymmetric in their abatement (technology that reduces emissions) costs. We use a model with four stages: Stage 1. The EG chooses a collaboration level with each firm. Stage 2. Each firm, knowing the support they receive from the EG, chooses their abatement level. Stage 3. The regulator, knowing the abatement investment, sets the emission fee to maximize social welfare. Stage 4. Firms independently and simultaneously compete in the market by choosing their output levels (abatement and payment of the emission fee occurs). We find that, as firms become more asymmetric in their abatement costs, the EG collaborates more with the firm suffering from an abatement cost disadvantage. However, this additional collaboration does not overcome firms' cost asymmetry, producing an overall decrease in total abatement and an increase in total emissions. We also evaluate the welfare effects of introducing an EG and/or a regulator, finding that the regulator generally yields larger welfare gains (from environmental regulation) than the EG when neither are present. Unlike previous studies, we show that the welfare benefit from a second agent (either the EG or regulator) is, under most settings, largest when firms are more asymmetric in their abatement costs. *Strandholm thanks the University of South Carolina Upstate Office of Sponsored Awards and Research Support for partial funding of the project through the Scholarly Course Reallocation Program under the title, “Picking green teams: how environmental groups form alliances within a market.”