Voluntary instruments for environmental management: a
critical review of definitions
(Preliminary version- Do not quote or disseminate without author's permission)
Annual Conference of Canadian Economic Association
Ottawa, Mai 29 –Juin 1 2003
Naoufel Mzoughi (corresponding author)
Université de Bourgogne- UMR INRA-ENESAD
26 Bd Dr Petitjean B.P. 87999 21079 DIJON CEDEX France
Tel: + 33 3 80 77 24 39 Fax: + 33 3 80 77 25 71
mzoughi@enesad.inra.fr
Gilles Grolleau
Université de Bourgogne- UMR INRA-ENESAD
26 Bd Dr Petitjean B.P. 87999 21079 DIJON CEDEX France
Tel: + 33 3 80 77 24 43 Fax: + 33 3 80 77 25 71
g.grolleau@enesad.inra.fr
Abstract : The limits of regulatory and economic instruments allowed the development of voluntary
instruments for environmental management. The proliferation of voluntary instruments have generated
an increasing economic literature. Nevertheless, this literature is generally unassuming the definitions
of the studied instruments. This paper tries to fulfill the gap, giving a new definition of voluntary
instruments. Our contribution differs from the previous ones by the importance given to the
instrumental character, the voluntary notion and the commitment of over-compliance to regulation.
We show that some voluntary approaches ensure beyond-regulatory results without necessarily
satisfying the objective defined by regulation or the voluntary approach itself. Beyond the terminology
considerations, our analysis enables to envisage a refined assessment of the effectiveness of different
environmental policies instruments. Our paper is organized as follows. First, we do a critical review of
available definitions in the economic liter ature, to identify and discuss the components of an
operational definition. Second, we develop and do a critical discussion of some constitutive
dimensions of voluntary instruments. Third, we put forward a simple model allowing the apprehension
of the government and firm behavior vis-à-vis a voluntary approach. We conclude with underlying the
contribution of this new definition, the limits of our paper and the further development.
Keywords : Voluntary instruments, definition, regulation, environmental management, over compliance.
JEL : K 32, Q 28.
Voluntary instruments of environmental management: a
critical review of definitions
"La définition fait connaître ce qu’est la chose." 1
Aristote, Extrait d’Organon.
"Définir, c’est savoir. Aussi la définition juste est-elle la
plus rare des denrées."2
Auguste Blanqui, Critique sociale
"Definitions are indispensable to communication, to the
vital process of persuasion which underlines any academic
discipline. Economists must begin their own peculiar
campaigns of persuasion by getting their readers to abide by
certain terminological choices. As a consequence, a sign of
maturity in any academic endeavor is the development of a
widely accepted distinct language composed of precise
definitions."
Freedman, 2002, P. 161
Introduction
Traditionally, environmental policies have relied on the government coercive power. These command
and control approaches define norms which are supposed to be respected by each agent to the risk of
being sanctioned. Further to theoretical works of economists such as Pigou, Dales and Coase,
governments have completed their range by implementing economic instruments. These two
generations of instruments enable to pick the low hanging fruits and recent works have showed their
weaknesses and limits (Hahn, 1992). Unlike the first instruments, a third generation one3- voluntary
approaches- came from regulated entities. More than 300 voluntary agreements have been concluded
with industry in the European Union Countries and about forty similar agreements are in place in the
United States (Delmas et Terlaak, 2001). This increasing phenomenon has been followed by an
increasing economic literature. Given the youth of these instruments and the related literature,
economists have not yet a "ready-to-use theory" to analyze this phenomenon. Our paper aims to clear
the notion of voluntary approaches and highlight its implications. Today, there is no general
terminology for this type of approach, neither an agreed definition. To clarify the notion of voluntary
approaches we do a review of available definitions. Our objective is to identify an array of convergent
constitutive elements allowing the characterization of voluntary approaches. These constitutive
elements themselves –the voluntary character and the intention to go beyond performances required by
regulation- are subject to critical discussion leading to a new definition of voluntary approaches. This
1
ie. A definition does make a thing known.
ie. Defining is knowing. So the right definition is it the most rare stuff.
3
In most real cases, an instrument borrows simultaneously from the three instrument generations. Nevertheless,
it is possible to categoriz e a real instrument by reference to its dominant characteristics. For example, the TRI
(Toxic release Inventory) is generally considered as a voluntary approach even though information provision is
2
2
definition overcomes the terminology debate and allow us to forward the basics of a refined analysis
of the environmental effectiveness of voluntary approaches. We conclude our paper with some
shading issues and by suggesting the possible perspectives for further research and empirical
applications.
1. A review of voluntary approaches definitions in the literature
The economic literature has not yet agreed on terms and definitions to substantiate voluntary
approaches. Unlike economic instruments which have been designed by economists, voluntary
approaches have been developed in practice under several forms. This variety is reflected in used
terms and senses leading to some confusion (Table 1).
Table 1 : Terms and definitions of voluntary approaches in the economic literature
Designations
Voluntary
approaches
Co-operative
approaches
Voluntary
initiatives
Voluntary
commitments
Voluntary
instruments
Non-mandatory
approaches
Self-regulation
Definitions
Authors
" Voluntary commitments of the industry undertaken in order to pursue Börkey and Levêque (1998)
actions leading to the improvement of the environment"
" Commitments from polluting firms in improving their environmental Carraro
and
Levêque
performances"
(1999), Higley and al.
(2001)
"Firms' commitments to improve their environmental performance beyond Krarup (2001), Börkey and
what the law strictly demands"
Glachant (1999)
"Voluntary commitments of regulated entities to define objectives, related to Grolleau (2002)
the environment, beyond the simple compliance to regulation"
"An agreement between government and industry to facilitate voluntary OCDE (1997)
action with a desirable social outcome, which is encouraged by the
government, to be undertaken by the participant based on the participant's
self interest"
"Collaboration between government and firms in devising or implementing Harisson (1999)
policies"
"Horizontal cooperative process in which firms are partners, even if they are Aggeri (1999)
considered as polluters"
"Non-statutory initiatives that aim at improving corporate environmental Labatt and Maclaren (1998)
performance"
Institutional arrangements in which firms play a central role"
Bôrkey
and
Glachant
(1998)
"Schemes whereby firms make commitments to improve their OCDE (1999)
environmental performance beyond legal requirements"
"Voluntary initiatives taken by polluting firms towards environmental self- Khanna (2001)
regulation as well as market-based and public pressures that create a
demand for self-regulation by firms"
"Voluntary association of firms to control their collective action"
King and Lenox (2000)
The lack of consens us on terms and their respective senses generates a little confusion. For some
economists dealing with voluntary approaches there is no question (or a little bit) with the definition
issue as if it goes without saying. In this paper, we opt for the following two generic terms: approach
and instrument according to four reasons. First, the term approach is the most used one in the
economic literature. Second, in other disciplines related to economics, e.g. law, we find the expression
of voluntary instruments. Third, traditional typologies of environmental policies tools use these terms.
imposed to firms. The provision is then mandated, but its use by actors, like investors, activists or insurance is
3
Fourth, the definition of instrument –"something by which we obtain a result" (Petit Robert) – or
instrument –"a way to tackle a knowledge subject to the point of view or the used method" (Petit
Robert) – enables the coverage of complementary aspects. For example, the instrument allows the
apprehension of the fact to instrumentalize the object in order to achieve an aim, while the approach
refers rather to the underlying logical allowing the object implementation. These notions of instrument
and approach could be characterized by specifying the instrument designer (by whom?), the
instrument user (for whom?), the target of the instrument implementation (why?), and the way to
achieve the objective (how?). As mentioned in Grolleau (2002), there is a wide variety characterizing
voluntary approaches. Some of them are designed by national public authorities (the government) or
their supranational emanations, while others are designed by private profit actors (firms) or non-profit
ones (non-governmental organizations).
The voluntary approaches typologies vary lightly between authors, with a tendency to a more refined
categorization, depending on agents implicated to the approach, the stage of intervention (design,
implementation, enforcement) and the degree of implication of each actor. Beyond the traditional
opposition of government regulator versus regulated firms, most recent typologies integrated
particularly the intervention of social regulators, such as non-governmental organizations. From
typologies based on the distinction firms versus governments we progressed to composite typologies
including explicitly other actors such as social regulators (non-government organizations, consumer
associations) and international organizations. For example, Segerson and Li (1999) suggested a
typology consisting of three categories: (1) unilateral initiatives designed to reduce pollution. These
initiatives could be introduced by individual or collec tive firms trying to set up standards or self regulation. A contrario, public authorities are quasi-away of these initiatives (2) the bilateral
agreements between a regulatory agency and an individual firm. These agreements result from a direct
negotiation between the two parties and mention the obligations for each of them (3) voluntary
programs designed by a regulatory agency to induce the participation of individual firms. The
regulatory agency establishes a program consisting notably of the eligibility criteria and the
obligations derived from the participation. Börkey and al. (1999) distinguish four types of voluntary
approaches: (1) the unilateral commitments corresponding to the environmental improvement
programs established and organized by firms. Nevertheless, firms could turn to a third party to carry
some stages such as the commitment control or the conflicts' settlement. (2) the private agreements
between polluting organizations and victims or their representatives. (3) the negotiated agreements
defined as arrangements between public authorities and industry and fixing a pollution abatement
objective and a fulfillment calendar. (4) the public voluntary programs where firms choose voluntarily
to join a program designed by public authorities. This program defines the conditions of individual
joining, the needed requirements and the control and result evaluation terms.
voluntary.
4
Although it is difficult to suggest a universal definition of voluntary approaches, two criteria allow to
substantiate them: on one hand, the voluntary commitment of regulated entities in opposition to the
restrictive character of regulatory and economic instruments, and, on the other hand, the definition of
environmental objectives beyond the simple regulatory compliance.
2. A relative voluntary character
The notion of voluntary character is used in opposition to command and control approaches that does
not come within a free agreed act by regulated actors, but rather from a constraint. According to Karp
and Gaulding (1995), each type of instrument refers to a particular determinant of human behavior :
the fear of sanctions and penalties based on government coercive power in the case of regulatory
instruments, the search of profit in the case of economic instruments, and the ethic and social
responsibility in the case of voluntary instruments. In reality, the voluntary4 character could be defined
under a continuum going from the free agreed initiative determined by the only will of the agent to the
pseudo or the quasi-compulsory will, because of external constraints.
Despite the interest of these complementary motivational underpinnings, many arguments question the
notion of voluntary character. Although it is often difficult to determine the role of each factor in the
decision of adoption by firms, the determinants mentioned for regulatory and economic instruments
could significantly contribute to the "voluntary character" of regulated agents. For example, many
studies argue that the threat of present and future regulation and the opportunity to increase profits by
various ways (such as efficient gains, product differentiation or reputation) constitute significant
explaining reasons for the adoption of voluntary approaches (Segerson and Miceli, 1998; Arora and
Gangopadhya, 1995; Grolleau, 2002). For example, Videras and Alberini (2000), Khanna and Damon
(1999) and Khanna and Anton (2001) argue that the threat of regulation motivated firms to adopt the
33/50 program.
The voluntary character could also be questionneds when considering the pressures supported to some
actors to adopt it. In fact, even if these pressures do not emanate from public authorities, some
regulated entities are practically in the obligation to adopt voluntary approaches in order to have
access to markets, to avoid social regulators pressures or to work with some decision makers. For
example, in 1999, many multinational firms such as Ford or General Motors announced that all their
suppliers around the world must be certified ISO 14001 by 2003 (Bansal et Bogner, 2002). These
4
The voluntary character is considered here in its most common sense referring to the adoption of the voluntary
approach. In some cases the voluntary character could refer to other stages of the establishment and
implementing process of approaches, which add another shadow area to the concept.
5
suppliers are thus "forced" to adopt this standard in order to keep their market share. In some
situations, the impact of actions (like the encouragement of boycott or media denunciation) introduced
by social regulators can affect the regulated entities profits making the adoption of voluntary
approaches quasi-compulsory in order to continue doing business. This type of pressure explains
partially the voluntary adoption by tinned-tuna retailers of codes that guarantee the ways of fishing
contributing to dolphin preservation (Reinhardt, 2000).
The preceding arguments do not refute entirely the voluntary character of the approaches, but show
that it is frequently influenced by governmental and private pressures. This voluntary character refers
mainly to the useless by the government of its direct constraint power. In addition to motivations
coming from the own will of the firm, many external forces can push a firm to adopt a voluntary
approach5.
3. Environmental performance beyond regulation !
The second constitutive element of definitions concerns the improvement of environmental
performance of firms beyond regulation. This property is frequently used in the literature to ex post
assess of these instruments. In fact, most empirical studies converge to show that firms achieved
results under a voluntary approach are lower than ex ante objectives (Table 2).
Table 2 : Main findings relative to environmental effectiveness of voluntary approaches
Program
33/50 (United States)
Findings
Reference
Voluntary initiatives do not guarantee an environmental performance Khanna and
improvement. Participation to 33/50 lead to a statistically significant Damon (1999)
decline of chemical emissions of 54 %, but only 28 % could be
attributed to the program.
ISO 14001 (United States)
ISO 14001 certification improve firms' environmental performance.
Russo and
Harrison (2001)
Responsible Care (Canada)
Participants to the program improve their environmental performance
more slowly than non-participants.
Environmental effectiveness is a priori mediocre.
For the French case, the decrease of phosphate tenure is independent
from the agreement.
King and Lenox
(2000)
Börkey and
Glachant (1999)
Dutch and French agreements
respectively with metal
industry and detergent one
These results should be considered with attention. In fact, the environmental effectiveness of voluntary
instruments is generally assessed with reference to three criteria. First, the objective fixed by the
instrument. The ex ante effectiveness is related to the ambition of the objective and the ex post one
5
Borkey and Glachant (1998) suggested an alternative vision of the voluntary character notion : "The technical, economic
and institutional context could create sufficient incentives for firms to environmental protection commitment. But looking at
it very closely, the voluntary character of firms' commitment is not specific to these institutional agreements. An
industrialist, facing a green-tax that modifies entrants relative prices, modifies his behavior in line favorable to environment
in just voluntary way. Even with more regulatory and coercive policies, we can consider that the adjustment of the firm to
6
enables the knowledge of the objective fulfillment. The ex post effectiveness should be then
questioned according to the ambition of the prior objective. Second, the regulation so that detecting to
what extent the voluntary approach encourages regulated entities to fulfill environmental performances
beyond regulatory compliance. The limit of this approach is that it considers that firms meet
regulation, which is often reappraised by empirical studies. Third, the "business as usual" scenario,
due, for example, to technological or organizational innovations which influence regulated entities
environmental performance even if they are not designed for that purpose. The results obtained by
Börkey and Glachant (1999) and Khanna and Damon (1999) showed that environmental
improvements of detergent sector for the former and 33/50 program for the latter result from the
natural progress of the concerned sectors. Concerning the detergent sector, Börkey and Glachant
(1999) claimed that concentrated-product development has been decided by most producers in the
middle 1980s, i.e. well before the signature of the agreement. Producers have favored the development
of these products because of their lower weight and volume which make them cheaper to manufacture
than standardized products. We introduce a fourth reference criterion which is the result effectively
achieved by regulation and the "business as usual" scenario. In fact, a voluntary approach could
improve environmental performance lower than regulatory requirements, but beyond the actual result
achieved thanks to regulation.
To illustrate this idea, we assume a voluntary approach and a regulation concerning the emission
reduction of a given pollutant (Table 3). The regulatory objective is fixed to 30 residual pollutant
units. The result effectively obtained is of only 50. This result combines the enforcement degree and
the "business as usual" scenario at the considered moment. A voluntary approach is introduced
announcing an objective of 20 and an effective result of only 40. This result is then lower than the
regulatory objective, but higher than the regulatory result.
Table 3 : Comparison of results and objectives of a voluntary approach with those obtained by a
regulation and the "business as usual" scenario
Regulation
Residual pollutant quantity
Voluntary approach
Objective
Result
Objective
Result
30
50
20
40
Thus, a voluntary approach while attaining a result which is lower than the legally binding objective
could be desirable, if it enables to overcome the result obtained by regulation and the "business as
usual" scenario. This situation is represented in figure 1.
regulation is being fulfilling on a voluntary basis insofar as it results from a trade -off between an administrative sanction cost
and the abatement one".
7
Residual pollutant quantity
70
60
Regulatory objective
50
Voluntary approach objective
40
30
Evolution of regulatory result
20
Evolution of voluntary
approach result
10
0
T1
T2
Time
Figure 1 : Regulation, natural progress and voluntary approach : a refined analysis of their
environmental effectiveness
As a whole, these elements lead us to define voluntary approaches/instruments as more or less
voluntary commitments taken by regulated entities in order to improve their environmental
performances beyond the actual result of regulation and taking into account the "business as
usual" environmental performances. The following section proposes a simple model of a
government and a firm behaviors vis-à-vis a voluntary approach corresponding to th is definition.
4. The government and the firm facing a voluntary approach: a frame analysis suggestion
Following Segerson and Li (1999) and Grolleau (2002) studies, we develop in this section a simple
model of the attitude of the government and a firm vis-à-vis a voluntary approach. We assume the
presence of only two actors: a firm searching for a profit maximization and the government searching
for an environmental result at a reasonable cost. The voluntary "fuzziness" concerning the
environmental result desirable for the government and the associated costs allows the introduction of
other considerations. Eventually contradictory, these considerations are likely to characterize the
different elements of the government such as the desire to be reelected, the hope of handling some
actors, the need of compromise between environmental requirements and the maintaining of economic
activities competition or the access to more funds.
Consider an initial situation with a regulatory system. The regulatory fixed ob jective is O0. We
postulate that this objective O0 is higher than the effectively obtained result R 0, i.e. R0 < O0. The non-
8
achievement of the regulatory objective could be attributed to many factors such as the firm
negligence and opportunism, the non-dissuasive character of sanctions or the insufficient control level.
These factors as a whole could be captured by means of a probability P0 relative to the regulatory
enforcement effectiveness, which is lower than 1. This probability depends not only on resources
invested by the government to the enforce, but also on other parameters such as monitoring by
activists or competitors likely to make the regulation enforced. From the firm point of view, this
probability related to the enforcement effectiveness is an essential determinant of the probability Pp0 of
loss in case of non compliance with regulation. These more or less direct losses can take various
forms, such as the temporary or definitive suspension of activity, the fines likely to threat the financial
viability of the firm, the deterioration of the image and the reputation of the firm, the boycott of its
products or the obligation of restoring the environmental degradation. These losses could be captured
by a multidimensional vector P allowing the capture of different aspects likely to occur. In the initial
situation, the risk to loose is given by Pp0 * P.
If P0 = 1 (P p0 = 1), then the enforcement is perfect and the regulatory objective could correspond
exactly to the result found in reality. The regulatory enforcement shown by P0 generates costs to the
government. Enforcement costs supported by the government are an increasing function of P0. This
postulate of imperfect enforcement is largely corroborated by the empirical literature. According to
prakash (2001), "one-third of major air polluters in the US have not been inspected since 1997. In ten
states, more than 40 % of all Clean Water Act inspections were so-called 'reconnaissance inspections',
in which inspectors were not required to get out of their cars". According to Potoski and Prakash
(2002), during the period 1996-1998, less than 1 % of the 122 226 American sites subject to
regulation within the three main regulatory acts –Clean Air Act, Resource Conservation and Recovery
Act, Clean Water Act- have been expected for their three environmental compartments. In France, the
assessing report of "Programme de Maîtrise des Pollutions d'Origine Agricole" (Pollution from
Agricultural Origin Control Program) (1999, p. 26-27) precise that in some regions the probability for
agricultural exploitations submitted to the "Régime des installations classées" to be well inspected is
of 1 time per 658 years. This report sums up the situation in these words: "the direct control frequency
is too weak, and the proportion of unpredictable controls is quasi-nil. No visited department do
exception to this rule. The direct controls are generally started following neighbors complaints. This
situation is to be progressed given the demand by the beginning of the year of the "Ministère de
l'Aménagement du Territoire et de l'Environnement" to intensify controls in order to arrive quickly to
a control rate of 5 % for the establishment submitted to authorization per year (i.e. an average of
control of one time every 20 years)".
9
Under this regulation, the profit of the firm is p0 which takes into account the whole costs supported by
the firm to be more or less in compliance to regulation. In fact, the firm chooses an intermediate
compliance level between non-compliance at all and total compliance. The compliance level choice
and then the costs C0 supported by the firm are function of P0 and P p0. The regulation could eventually
generate some gains G0 notably those of efficiency allowing the waste elimination. This assumption
developed by Porter (Porter and Van der Linde, 1995a; Porter and Van der Linde, 1995b) supposes
that firms have inefficiencies that regulatory enacting and enforcement can contribute to its
elimination. This assumption is largely criticized and it seems that reality is more nuance (Walley and
Whitehead, 1994; Jaffe and al., 1995; Reinhardt, 1999). The initial situation profit is equal to the profit
without regulation reduced by generated compliance costs, and added to eventual benefits, i.e. p0 = p –
C0 + G0.
Consider now the government and the firm behavior vis-à-vis an entirely private voluntary approach.
Our objective is to identify the realistic conditions under which the government and the firm,
respectively, are likely to encourage the adoption of the voluntary approach 6. The fact that this
voluntary approach is entirely private, does mean that at first, its conception, implementation and
enforcement are costless for the government. Although this assumption is relatively restrictive, it
makes sense in the real world. The ISO 14001 standard, for example, is a voluntary initiative which
compliance, implementing and enforcement costs (notably the third party certification process) can be
considered as nil for some governments. In contrast, the adoption of such initiative, results with some
costs Cv for the firm. Such adoption is also likely to engender varying benefits Gv, which can be
difficult to measure like the efficiency gains, the easier access to human resources, the opportunity to
differentiate products, the relationship improvement with public authorities, the construction of a
green reputation and a good public image. These different aspects are discussed and illustrated in
Grolleau (2002). This adoption is a priori likely to reinforce the public authorities enforcement
effectiveness to some level Pv (Pv = P0) and symmetrically decrease the probability for the firms to
support losses related to regulatory compliance (P pv = Pp0). In fact, the adoption of some voluntary
approaches could bring credible guarantees concerning regulatory respect. To go back to the ISO
14001 example, many authors argued that the adoption of these environmental management systems
enables adopting firms to have better knowledge of regulation and thus better respect. In addition, the
third party certification could give the government an opportunity to identify the regulatory-complied
firms without having to control them directly, and to use its limited resources to enforce the nonadopting actors (Steinzor, 1998; Grolleau, 2002). According to Maxwell and Lyon (1999), one reason
why firms do voluntary commitments could be to signal their costly investment to regulatory
6
In reality, the government itself could be considered as a potential adopting, given the importance of its proper structures in
most economies.
10
authorities in order to benefit from less controls or better attention7. In line with this idea, the
environmental French Minister has clearly indicated its intention to more flexibility for firms with
certified environmental management system. (Grolleau, 2002).
Consider the conditions under which the government encourages the voluntary approach adoption.
Compared with the initial situation, the government does not bear an supplementary cost when
adopting a privately managed voluntary approach. Giving the fact that each firm is supposed to respect
regulation, the objective announced by the voluntary approach should be generally (to not say always)
higher than the regulat ory one, i.e. Ov > O0. We deduce, in a first approach, that the only variable
likely to determine the government behavior vis-à-vis a voluntary approach is the environmental
performances improvement thanks to the latter.
The sufficient condition for government to encourage a voluntary approach lies in the
environmental performances improvement compared with the initial situation. The result, after
voluntary approach adoption, must be higher than the initial one obtained thanks to regulation and
the business as usual scenario, i.e. R v > R 0 .
In fact, numerous factors make firms likely to decrease their negative environmental impacts such as
the diffusion of new technologies adopted for economic reasons, which have also positive
repercussion on environment al performances.
The preceding sufficient condition means that government could choose to encourage voluntary
approach, even if Rv = O0. Although the particular nature of this case characterized by Rv > R0 and Rv
= O0, it allows to nuance some studies on voluntary approaches environmental effectiveness. In fact,
these studies consider the environmental effectiveness with reference to (1) the regulatory fixed
objective rather than the result generated by this regulation (2) the objective defined in the voluntary
approach (3) the business as usual scenario of environmental performances. Thus, some a priori
disappointing results could be reinterpreted with a more right way with use of the cases distinguished
above envisaging also the assessment with referenc e to (4) the results effectively achieved.
Consider now the firm decision to adopt or not the voluntary approach. The adoption of voluntary
approach is likely to decrease the probability for the firm to be subject of losses. Following a
compliance to regulation these losses come in reducing P p0 to Ppv. As we mentioned, such adoption
7
A "misadventure" of the group Saint Gobain corroborates this idea. Following a customer desire, the environmental
managers of the manufacture Wichita Falls (USA) asked EPA for an authorization to modify some details in the production
process. The American administration took 6 months to answer, and Saint Gobain almost nearly lost his customer. But EPA
indicated that for future,it could accept that “ firms with ISO 14001 certification don't go on the same procedures as the
others and thus could react more rapidly ” (Décision Environnement, 1996).
11
generates discounted costs (like the initial cost and the voluntary approach maintaining costs) and
varying benefits that we take into account in the form of multidimensional vectors, i.e. respectively Cv
et Gv. Within the benefits likely to be generated by the voluntary approach, there are benefits resulting
from the voluntary approach announced objective. For example, the firm could differentiate its
products evoking its participation to the voluntary approach and its objective, keeping in shadow the
effective results, which are a priori lower than the objective. This alternative gives firms the
opportunity to indirectly do profit from being in compliance to regulation.
In this context, a firm searching profit maximization will do a trade-off by choosing the option (adopt
or not a voluntary approach) that maximizes its profit. The firm adopts the voluntary approach if pv >
p0 or, when introducing the temporal dimension8, if
T
∑π v f
t =1
T
∑π
0
t =1
The annual generated gain from the adoption of the voluntary approach is [(P p0 –Ppv)P + Gv]. With r is
the discount rate, the total expected benefits B v from the adoption of the voluntary approach are :
∑ (P
T
p0
t =1
− Pp v )P + Gv
(1 + r )t
The firm decision to adopt the voluntary approach is then determined by the following condition: if
Bv > Cv ,then the firm invests in adopting the voluntary approach.
Thanks to this simple model, we lead to conditions under which the government and the firm adopt a
positive attitude vis-à-vis the voluntary approach. However, some factors can prevent the firm from
adopting the voluntary approach. The following factors are largely inspired from Kunreuther et al.
(2001).
(1) The difficulty to assess some of the model parameters could lead actors to use simplified decision
rules. For example, a firm suffering from a difficulty to assess the voluntary approach propensity to
decrease its risk of non-compliance (i.e. a difficulty to assess P pv), could decide to use a simplifying
decision rule by putting a threshold probability Ps. If P p0 < P*, the firm does not adopt the voluntary
approach. In the contrary case, if Pp0 > P*, the firm adopts the voluntary approach. According to
Kunreuther et al. (2000), the use of such rules is largely corroborated by numerous empirical studies.
This difficulty also concerns the government.
8
A more refined model can also allow the determination of the optimal moment for the voluntary approach
adoption, i.e. with identifying the moment when the adoption corresponds to maximum profit.
12
(2) Taking a short time horizon could encourage firms to do not adopt a voluntary approach, their
decision being shaped by short term considerations. The managers' assessing performance methods
can favor short term accounting. This short-sightedness comes to truncate the period T by substituting
a shorter period, which generates a substantial benefits decreasing and makes the investment in
voluntary approach less interesting. To illustrate, consider the case where P= 50 000 euros, Pp0 = 0,05
and Ppv = 0,01 and Bv = 500. If the annual discount rate is of 8% and the temporal horizon is of 5
years, then benefits are about 10000 euros. If the temporal horizon is of only one year, then benefits
resulting from the voluntary approach are of only 2315 euros. Thus, the temporal horizon used in the
decisional process could or not favor the voluntary approach adoption.
(3) The limited value of firm's assets can also explain the decision to do not adopt a voluntary
approach. By declaring its insolvency, the firm can deduce that the maximal amount of P is
determined by the whole asset value. In the case of small firms, these latter are generally of limited
amount. If the asset amount A is lower than P, firms' benefits resulting from an eventual adoption of
the voluntary approach are determined by [(P p0 –Ppv)A + Gv] rather than [(P p0 –Ppv)P + Gv]. If the costs
relative to the adoption are lower than [(Pp0 –Ppv)P + Gv], but higher than [(P p0 –Ppv)P + Gv], the firm
could decide to do not adopt.
Conclusion
A review of the economic literature on voluntary approaches definitions highlighted some limits of
these definitions, notably the confused terminology, the voluntary character with vague and varying
outlines and the ambiguity toward the regulatory compliance. We suggested and argued in favor of
some terminological choices, which allowed us to suggest a definition that goes beyond the preceding
critics. A voluntary approach/instrument is a commitment from regulated agents to improve
their environmental performances beyond the actual result obtained thanks to regulation and
the "business as usual" scenario. These voluntary approaches could constitute "win-win" strategies
likely to reinforce the efficiency and the effectiveness of public intervention, and enable firms to make
good use of efforts done within the regulatory compliance frame. These potentialities should not hide
the risks of perverse effects eventually generated by the commercial development of the regulatory
compliance. In addition, our analysis is just in an embryonic stage and several improvements ways
have to be explored. For example, our model can be refined by integrating the costs supported by the
government when designing and implementing voluntary approaches, the strategic interactions within
the groups of agents. Furthermore, empirical tests could allow refined effectiveness assessment of
voluntary instruments, providing consequently inputs likely to guide the public action.
13
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