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Comments on Sustaining Industry Self-Regulation in the Face of Free-Riding

Comments on Sustaining Industry Self-Regulation in the Face of Free-Riding. Petra Christmann The Darden School University of Virginia Management Strategy and the Business Environment The Wharton School, University of Pennsylvania March 27, 2004.

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Comments on Sustaining Industry Self-Regulation in the Face of Free-Riding

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  1. Comments on Sustaining Industry Self-Regulation in the Face of Free-Riding Petra Christmann The Darden School University of Virginia Management Strategy and the Business Environment The Wharton School, University of Pennsylvania March 27, 2004

  2. Sustaining Industry Self-Regulation in the Face of Free-Riding • Research Question: • When will industry self-regulation take place as a result of decisions of individual firms? • Key assumption: • Firms are rational, profit maximizing actors.

  3. Competing Perspective on Industry Self-Regulation

  4. Discussion of findings:Spillover benefits • Responsible Care provides a public good • Spillover benefits are substantial (Non-members Tobin’s q increased more than members Tobin’s q) • Are the results convincing? • Appropriate measures and controls • Is difference significant? Why not use interaction? • Time window: How long does it take for benefits from RC to materialize? Are there lags? • Event study

  5. Competing Perspective on Industry Self-Regulation

  6. Benefits from participation findings • Firms are heterogeneous in their motivation for participation in Responsible Care: • On average firms that choose to participate in RC did worse than had they chosen not to participate if RC had continued to exist. • 23 of 48 firms benefited directly from participation  Olson hypothesis • 25 of 48 would have benefited from not participating (free-riding)  Fear of collapsing hypothesis • Are managers really this rational? • More detail on differences between firms that benefited from being members of RC and firms that did not. • Verify the motivation for participating in RC through interviews with decision makers in some sample companies or a survey. • What about the opposite counterfactual? Were there firms that did not participate that would have benefited from participation? • More detail on firms in Figure 1. Do the groups differ in their benefits from participating/not participating?

  7. Figure 1

  8. Implications for Industry self-regulation • What are the implications of these findings for self-regulation in other industries? • Can we identify industry characteristics that contribute to SR agreements? • Do firms use industry SR to gain competitive benefits in their industry, e.g. to raise rival’s cost? • Were the firms that benefited from participating involved in the design of RC?

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