Grantee Research Project Results
2006 Progress Report: Institutions for Removing Information Asymmetries in the Market for Corporate Environmental Performance
EPA Grant Number: R831733Title: Institutions for Removing Information Asymmetries in the Market for Corporate Environmental Performance
Investigators: Terlaak, Ann
Institution: University of Wisconsin - Madison
EPA Project Officer: Hahn, Intaek
Project Period: October 1, 2004 through September 30, 2007 (Extended to September 30, 2008)
Project Period Covered by this Report: October 1, 2005 through September 30, 2006
Project Amount: $76,083
RFA: Corporate Environmental Behavior and the Effectiveness of Government Interventions (2004) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
The goal of this project is to assess the conditions under which certification of environmental management practices removes information asymmetries between firms and stakeholders by credibly signaling about superior environmental performance. Issues that may limit the ability of certification schemes to signal about superior environmental performance include that the relationship between what is being certified (environmental management practices) and what certification is expected to communicate (level of environmental performance) may not always be positive. Furthermore, the practices that are being certified may shape the very attribute about which certification signals. Finally, difficulties internalizing the benefits associated with certifying environmental practices may cause multi-plant firms to strategically choose which of their plants to certify thereby reducing further the signaling value of certified environmental management standards. Understanding these issues is critical for the ability of policymakers and stakeholders to draw correct inferences from certification of environmental management practices.
Progress Summary:
Conceptual analysis so far reveals how two unique elements of certified environmental management standards—codification and certification of practices—simultaneously enable and restrict the ability of management standards to signal about superior performance and guide socially desired firm behaviors. Codification and certification are enabling because they allow a certified standard to shape firm behaviors in settings where other soft-law institutions (like norms) are ineffective. However, they also are limiting because they induce a mix of both low- and high-performing firms to participate thereby both weakening decentralized enforcement processes and reducing the standard’s signaling value.
Furthermore, conceptual analysis suggests that multi-plant firms may engage in “satisficing signaling” when adopting a certified management standard thereby further reducing the standard’s signaling value. Specifically, I theorize that multi-plant firms with poor environmental performance respond to stakeholder pressures to adopt and certify “green” practices by seeking certification for one (or more) of their plants. However, this certification may merely be a “satisficing signal” to stakeholders: because multi-plant firms have a choice which of their facilities to certify, they will select their better-performing plants, rather than their worst performers, to receive certification. I argue that such selection allows headquarters to minimize adoption costs in the face of payoffs that are uncertain (due to the difficulties of internalizing the benefits of “green” behaviors). This selection, however, is not in the interests of stakeholders who would like the lowest performers to adopt and certify the best environmental practices.
I have empirically explored the notion of multi-plant firms engaging in “satisficing signaling.” Using data on the adoption of the ISO 14001 Environmental Management Standard within multi-plant firms, I have found some support for this idea. Specifically, I find that facilities that are poor performers within their industry more likely seek certification with ISO 14001, but that these facilities are actually outperforming the other plants within their firm. Furthermore, they operate in relatively cleaner industries and already have some experience with other certified management standards.
I also have used data on the adoption of the ISO 14001 Environmental Management Standard to explore whether: (1) the occurrence; and (2) the level of signaling equilibriums depend on the availability of additional information about firm environmental performance. I have found no support for these notions.
Future Activities:
One focus in my future activities will be to refine and further explore the concept of corporate “satisficing signaling.” So far, this concept has revealed that new insights might be gained by taking a within-firm perspective for the analysis of certified management standards. Such perspective may contribute to our understanding because it allows considering that multi-plant firms can engage in strategic behavior when choosing which of their plants to certify. A within-firm perspective might furthermore be fruitful because it allows for analyzing how facilities that are parts of multi-plant firms may respond to pressures originating from both their industry and their corporate headquarters.
Future activities will also focus on the manipulation of Water Discharge Permit (Permit Compliance System [PCS]) data. PCS data provides longitudinal and continuous information on permit violations and could be used (in combination with Toxics Release Inventory [TRI] data or alone) as a second indicator of firm environmental performance. The PCS database contains 21 different datasets that need to be merged into 1 set before being manipulated and checked to assure quality.
Journal Articles on this Report : 1 Displayed | Download in RIS Format
Other project views: | All 6 publications | 2 publications in selected types | All 2 journal articles |
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Terlaak A, Gong Y. Vicarious learning and inferential accuracy in adoption processes. Academy of Management Review 2008;33(4):846-868. |
R831733 (2006) |
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Supplemental Keywords:
social science, ISO 14001, certification, environmental management systems, information provision, signaling theory, Economic, Social, & Behavioral Science Research Program, RFA, scientific discipline, sustainable industry/business, corporate performance, Economics & Decision Making, economics and business, social science, decision-making, ISO 14001 certification, behavior change, benefits assessment, corporate compliance, corporate culture, corporate environmental behavior, corporate environmental reform, cost benefit, decision making, environmental behavior, environmental management strategies, environmental management systems, environmental management systems (EMS), environmental performance awards, outreach and education,, RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Sustainable Industry/Business, Corporate Performance, Economics and Business, decision-making, Economics & Decision Making, Social Science, environmental management systems (EMS), ISO 14001 certification, environmental management systems, decision making, corporate compliance, cost benefit, environmental performance awards, corporate evironmental reform, behavior change, outreach and education, pollution prevention, environmental behavior, benefits assessment, corporate environmental behavior, corporate cultureRelevant Websites:
http://www.bus.wisc.edu/faculty/facdetails.asp?id=433 Exit
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.