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Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance

Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance. Matthew Potoski Iowa State University & Aseem Prakash University of Washington. Research Question. Do voluntary programs improve participants’ environmental performance?

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Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance

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  1. Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance Matthew Potoski Iowa State University & Aseem Prakash University of Washington

  2. Research Question • Do voluntary programs improve participants’ environmental performance? • Specifically, do programs with weak monitoring and sanctioning mechanisms – weak swords – mitigate shirking and improve performance?

  3. Big Picture • Diminishing returns to command and control • Controversy over the efficacy of voluntary environmental programs • Empirical results provide mixed evidence on efficacy

  4. Key Argument • Voluntary programs effective if they mitigate shirking • Shirking mitigated through - monitoring and sanctioning - Public disclosures - Sanctioning by program sponsors • However, programs with monitoring only can mitigate shirking

  5. ISO 14001 • Launched in 1996 • Geneva-based non-govt, non-profit organizational • By the end of 2002 49,000 facilities in 118 countries had joined ISO 14001 • EMS-based • Third-party auditing

  6. Previous research • Responsible Care Ho: shirking mitigated due to institutional mimicry and normative pressures Ha: Shirking not mitigated because absence of monitoring Result: RC not effective

  7. Our contribution • Build on RC research, contrast ‘no sword’ with ‘weak sword’ • ISO 14001 similar to RC because of their EMS focus • Institutional pressures less likely to work in ISO 14001 vs. RC • If ISO 14001 participants improve performance, third-party monitoring significantly contributed to it

  8. Methods • Treatment Effect model to control for endogeniety issues • Stage 1: Estimate the probability of joining ISO 14001 • Stage 2: Examine if joining ISO 14001 improved performance • Variables: Facility, regulatory, neighborhood, and state policy contexts

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