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Land Economics 84(1):97-114 (2008); doi:10.3368/le.84.1.97
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Voluntary Agreements with Industries: Participation Incentives with Industry-Wide Targets

Na Li Dawson, and Kathleen Segerson


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We consider a policy environment in which an entire industry is faced with possible imposition of an emissions tax if environmental goals are not met voluntarily. We develop a multiple-firm model of pollution abatement in this context. Using the concept of a self-enforcing equilibrium, we examine the free-riding incentive of individual firms and its impact on the viability of the voluntary approach. We find that, despite the free-riding problem, a sub-group of firms have an incentive to participate in the VA. The VA is strictly preferred by the industry as a whole, although it is not cost-minimizing. (JEL Q53, Q58)


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