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Voluntary Agreements

Voluntary Agreements

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Published by hishamsauk

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Published by: hishamsauk on Apr 22, 2011
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12/16/2012

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E
NVIRONMENTAL
E
CONOMICS
&P
OLICY
 
V
OLUNTARY
A
GREEMENTS
A policymaker faces two basic options when coming to a policy for a cleanerenvironment:
to use
mandatory regulations
(
command and control, taxes, TPPs
),
or induce firms toparticipate in 
V
oluntary Agreements
.
T
here are three broad types of voluntary agreement that occur:
U
nilateral commitments
(
where firms take action without prompting by regulators
)
.
Ex
ample:
1984-89
,
Chemistry Industry Associations in the US
,
UK
,
Canada established
R
esponsible Care
programmes after a chemical leak in India
.
N
egotiated agreements
(
where a firm and regulator negotiate the terms of avoluntary agreement
)
.
Ex
ample:
rench Government and car manufacturers agreed 
that
,
by 2002
,
 
9
0% of car parts could be reused
,
recycled and recovered
P
ublic
V
oluntary agreements
(
where a regulator creates the conditions of anagreement and attempts to recruit firms
)
.
Ex
ample:
US
Environmental protection Agency (EPA) lead the 33/50 programme
where listed chemicals were to be reduced by 33% in
199
2 and 50% in
199
5
.
 
V
OLUNTARY
A
GREEMENTS
Wh
at are t
h
e benefits of 
V.
As above mandatory regulation?
T
he most common benefit is that V
.
As are far more flexible
(
especiallyunder Unilateral and Negotiated agreements
),
which allow the firm totake the least cost method of abatement
.
This argument is most persuasive when the alternative (regulation) ishighly inefficient and rigid 
;
for example
,
regulation rather than
TPP
s
-
the more flexible the regulatory instrument
,
the lower the cost savings
.
Indeed
,
 
TPP
s/
P
igouvian taxes satisfy the
equimarginal principle
(
wherethe marginal abatement cost is minimised across all firms
),
voluntaryagreements
,
due to their non
-
mandatory nature
,
may not satisfy it
.
Also
,
there are gains from reduced confrontation
.
V.
 As may have lower transaction costs than regulation
,
and there isless spending on lobby groups
.
Also
,
information flows are richer
reducing asymmetricalinformation
about abatement technologies and therefore
reducingimplementation lags
.

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