The private costs and benefits of environmental self-regulation: which firms have most to gain?

Abstract

A (correctly designed) voluntary self-regulatory scheme can - in theory - improve social welfare if the benefits to society outweigh the costs. However, businesses may not choose to participate in a voluntary scheme if their private benefits do not outweigh their costs; external benefits are irrelevant to the profit maximizing firm. This paper reviews literature on self-regulation, primarily focusing on factors that influence the net private benefits of environmental programmes. The literature is summarized in a manner that allows one to identify characteristics of firms that are most likely to accrue positive net benefit from environmental programmes, and to determine ways in which self-regulatory bodies might raise those benefits, thereby increasing participation rates.