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It’s Not Easy Building Green: the Intersection of Private and Public Institutions in
the Adoption of Voluntary Certification Standards
Jeffrey G. York
University of Virginia
Darden Graduate School of Business
Ph: 804-922-9099
Yorkj05@darden.virgina.edu
For Submission to the First Annual Alliance for Research on Corporate Sustainability
Conference
Working Paper: Please do not distribute or cite without permission
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It’s Not Easy Building Green: the Intersection of Private and Public Institutions in
the Adoption of Voluntary Certification Standards
1.1 Abstract
An emerging body of scholarship has highlighted the role of private, decentralized
institutions in encouraging collective action among organizations. One type of private
decentralized institution, voluntary certification standards, has gained popularity in recent years
across multiple industries. However, the influence of public, government-sponsored institutions
and private, voluntary institutions on the adoption of these programs has received less attention. I
explore the relationship between government action, private organizations and the adoption of
voluntary standards in a study of the Leadership and Energy and Environmental Design (LEED)
certification for green building. The results demonstrate state policies have a greater impact in
the presence of private efforts to create legitimacy for a new standard, and that market
intermediaries have a greater impact on adoption in areas with low levels of entrepreneurship.
Taken together, these findings illustrate that the institutional environment, and particularly
entrepreneurship, is a critical consideration for understanding the adoption of voluntary
certification standards.
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1.2 Introduction
Collective action problems, the challenge of coordinating individuals to contribute to public
goods (Olson, 1971), have long been studied by political scientists (Hardin, 1982; Ostrom, 1990;
Ostrom, 1998, 2000) and economists (Olson, 1971, 1982; Sandler, 1992) , but have received
relatively little attention from organization scholars. The alternative solutions to collective action
problems, public institutions (state driven laws and regulation) and private institutions (nongovernmental organizations, norms, codes of conduct, certifications) have each been empirically
shown to effect organizations and organizational fields (Ingram & Silverman, 2002). However,
we are far from understanding the interplay of these institutions in directing industry towards the
creation of public goods, such as greater social and environmental benefits (Russo, 2003).
In recent years, voluntary certification standards have emerged as a powerful force for
encouraging industries to adopt socially beneficial practices. For example, more than 900,000
companies worldwide have obtained certification with various standards (ISO, 2006). Voluntary
certifications span industries, including hospitals (Ruef & Scott, 1998), colleges business schools
(Romero, 2008), automobile manufacturing (Cole, 1999), agriculture (Marshall & Standifird,
2005) and information technology (ISO, 2006). An area in which voluntary standards have
gained in popularity in recent years has been in addressing a product or industry’s impact on the
natural environment (Kirton & Trebilcock, 2004). For example, over 100,000 companies have
obtained the ISO 14001 certification for environmental management systems. Voluntary
certifications can resolve information asymmetry by assuring that a product or service is
provided according to a given standard for reduced environmental degradation. Voluntary
certification standards have been developed to address environmental impacts in a diverse range
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of industries ranging from tourism to textiles (Delmas & Terlaak, 2001). Recent work has
focused on the strategic adoption of voluntary certifications (King, Lenox, & Terlaak, 2005) and
their role in sustaining industry self regulation (Lenox, 2006) yet we still know little about the
institutional factors influencing the adoption of these standards.
In this paper, I explore how public and private institutions interact to foster the adoption of
voluntary certification standards through examining the creation and diffusion of the Leadership
in Energy and Environmental Design (LEED) certification for green building. I also examine
how entrepreneurship, operationalized as the founding of a new business by an individual
(Shane, 2004), can influence adoption levels.
Voluntary certification standards are particularly important for emerging industries.
Because new industries lack historical legitimacy (Suchman, 1995) it is difficult for stakeholders
to assess their claims. Further, because firms know more about their products than consumers,
there are problems of information asymmetries (Akerlof, 1970). The problem of information
asymmetry can be overcome by institutional arrangements which smooth the way for exchange
(Ingram et al., 2002) by allowing the enforcement of contracts or reducing information
asymmetry between parties. These arrangements have been fostered by both public (de Soto,
2000; Sine, Haveman, & Tolbert, 2005) and private (King et al., 2005; Lenox, 2006)
institutions. While the institutional entrepreneurship literature has addressed the role of
individuals in directly influencing institutions to benefit their interests (DiMaggio, 1988), it has
told us little about how founding of new firms can influence the adoption of new institutional
forms.
LEED is an example of a voluntary standard solution to the collective action problems of
information asymmetry (Akerlof, 1970) and environmental degradation . LEED was created by
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the US Green Building Council (USGBC) with the intention of reducing information asymmetry
around the environmental impact of buildings, thus encouraging those engaged in construction to
create a public good (reduced environmental impact). While LEED represents a solution to
collective action problems, I focus my analysis on the drivers of adoption of this solution. Why
do we see LEED projects taking place? What explains the adoption of LEED in a given
population? What is it about the institutional context that leads to the adoption of green building
practices?
Theoretically, this paper contributes to several lines of research. First, there have been very
few studies of the simultaneous role of public and private institutions in the creation of public
goods. The studies that do examine these factors have shown regulatory environments to have a
strong effect on the development of emergent industries including renewable energy (Sine et al.,
2005; Sine & Lee, 2007). The role of trade associations (Russo, 2001) and voluntary standards
(King et al., 2005) in establishing public goods has also been empirically demonstrated, yet
other studies have shown that industries may not be able to self-regulate without clear sanctions
(King & Lenox, 2000). However, the relationship between simultaneous voluntary effort to
create standards and certification and governmental incentives for an emergent industry is still
relatively unexplored. I develop a theoretical model that explains how private and public
institutions can be mutually reinforcing, and how entrepreneurship can also support each.
Second, I add to the emerging literature on environmental entrepreneurship by offering one
of the first empirical studies to examine the specific role of entrepreneurial action on the creation
of environmental benefits. While several scholars have offered theories about how market failure
can be resolved (Cohen & Winn, 2007; Dean & McMullen, 2007), there has been little written
about the role of the entrepreneur in collaborating with government action and private activism.
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Also, the role of entrepreneurship in supporting the adoption of environmentally friendly
business practices across fields is not clearly understood. I fill this gap by testing specific
hypotheses regarding the effect of entrepreneurship, defined as the founding of new businesses,
in creating a sustainable industry.
Finally, I extend the literature on collective action by adding to our understanding of how
solutions to collective action problems are adopted. While economists (Hardin, 1968; Olson,
1971) and game theorists (Hardin, 1982) predict that latent groups will not organize to create
public goods, we have ample empirical evidence that collective action problems are consistently
overcome (Ostrom, 1990). Yet, we have no extant theory that explains under what conditions
collective action will occur on a national scale. While the literature on institutional
entrepreneurship explains why and how individuals seek to directly change institutions, it does
not explain how the founding of new businesses can help solve collective action problems and
produce public benefit. I address this gap by showing that new business creation offers a little
understood mode of influencing institutional change.
In the following sections, I begin with a review of the history and activities of the U.S. Green
Building Council (USGBC) and subsequent creation of LEED. I then develop a set of theoretical
propositions regarding the effect of institutional conditions on the adoption of the LEED
standard. I draw on numerous data sources to illustrate how government driven policies, private
institutional activism, and the founding of new businesses moderated the adoption of LEED. I
then empirically test my propositions and discuss the results.
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1.3
The U.S. Green Building Council and LEED Certification System
Green building can be defined “design and construction practices that significantly reduce or
eliminate the negative impact of buildings on the environment and occupants” (USGBC, 2004a).
Broadly speaking, green buildings are high performance property constructed with consideration
of its impact on human health and the natural environment. Green buildings are designed to use
less energy, water and reduce the environmental impacts through improved sitting design,
material selection and construction (Yudelson, 2007).
While the seeds of the green building movement were sown by American Institute of
Architects (AIA) activities and the Federal government during the 1980s and 1990s most would
agree that prior to 2000, green building did not receive much attention from mainstream
companies. Green buildings were perceived interesting experiments, but not something that was
within the grasp of most firms. After all, how could you even tell what a “green” building was?
Did it have to use solar power? Was it made of straw bales? Did it mean you couldn’t have lights
inside? The US Green Building Council was founded in 1993 explicitly focus on answering these
types of questions with the aim of “nothing less than to fundamentally change the building
environment by creating energy-efficient, healthy, productive buildings that reduce or minimize
the significant impacts of buildings on urban life and on the local, regional, and global
environments” (Yudelson, 2007).
The USGBC has emerged as one of the most influential and successful non-profit
organizations in U.S. history, attracting organizations from a diverse array of fields and countries
and swelling to membership of over 17,000 organizations. Many attribute this growth and
success to the USGBC’s flagship project, the Leadership in Energy and Environmental Design
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(LEED) rating system. LEED was created with the specific goal to “define ‘green’ by providing
a standard for measurement” and “prevent ‘greenwashing’” to “facilitate positive results for
environment, occupant health and financial return” (USGBC, 2004b). LEED 1.0 was introduced
in 1998. A pilot program that received funding from the DOE quickly exposed some
shortcomings. Many of the credits were already standard practices, or were too tightly
prescriptive to be met. Also, users reported that the reference guide was too brief. In 2000 LEED
2.0 was released for public use. While less than 1,000 projects were registered in this first year,
by 2008, $464 million worth of construction would register with the LEED program every single
day (USGBC, 2008a).
In order to receive LEED certification, projects need not be owned by or involve
members of the USGBC. The LEED system works by assigning points to a building project
based on six criteria areas (listed in Table 1).
--------------------------------------------------------------------------------------------------------------------Take in Table 1
--------------------------------------------------------------------------------------------------------------------In order to be considered for LEED certification, building projects must first be registered. Upon
completion of the project, the project administrator will submit documentation for consideration
by the USGBC. Based on the number of points allocated to the project, one of four levels of
certification can be awarded: Certified, Silver, Gold or Platinum.
The original LEED rating system was designed for new, commercial construction
(LEED-NC). Since 2000, five additional LEED ratings systems have been created applying to
commercial interiors for tenant improvements (LEED-CI), the operation and maintenance of
existing buildings (LEED-EB), the core and shell of buildings (LEED-CS) and single-family and
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multi-resident home construction (LEED for Homes) (Yudelson Associates, 2007). In 2000, 41
projects registered with LEED in the U.S.; in 2008 there were projected to be over 7,400.
Some have attributed the growth and success of LEED to the assurance it provides
prospective buyers and tenants and the potential cost savings of embracing green building
(Lockwood, 2006) but the rise of green building has not occurred in isolation. Simultaneous to
the rise in LEED projects, state driven incentives, such as tax refunds, and in some cases,
requirements for LEED certification have appeared. Also, the USGBC has grown both their
membership and certified a growing number of LEED Accredited Professionals, individuals who
act in a consulting role to LEED projects. Finally, green building materials, services and
furnishings have become more widely available and their prices have dropped considerably
(BuildingGreen, 2007). In the following section, I explore the impact of public institutions, in
the form of state-level incentives, of voluntary standards and develop hypotheses about how a
variety of private institutions can moderate the efficacy of these policies.
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1.4 Theoretical Development
1.4.1
Institutional Solutions to Collective Action Problems
The earliest articulation of the problem of collective action is credited to Hume (1740):
Two neighbours may agree to drain a meadow, which they possess in common;
because ‘tis easy for them to know each others mind; and each must perceive, that
the immediate consequence of his failing in his part, is the abandoning the whole
project. But ‘tis very difficult, and indeed impossible, that a thousand persons
shou’d agree in any such action; it being difficult for them to concert so
complicated a design, and still more difficult for them to execute it while each
seeks a pretext to free himself of the trouble and expence, and wou’d lay the
whole burden on others. (538)
Hume’s insight addresses the two central problems of collective action. First, the larger a
group is, the more difficult it is for them to coordinate any action. Second, there is a strong
temptation to free ride on the efforts of others when goods are collective in nature. Olson (1971)
expanded these concepts and articulated them in The Logic of Collective Action. Challenging the
commonplace assumption that groups would coordinate in their own self-interest, he explained
that without incentives to do so, individuals would logically choose not to contribute to a public
good. Although the term “public good” has been utilized by collective action scholars in a
variety of ways, (see Ostrom, 2003 for an overview) in this study, I follow Olson’s definition.
Public goods are defined to be 1) non-exclusive, in that it is not economically feasible to exclude
consumption and 2) limited, meaning that one individual’s consumption impacts the share left to
others (Olson, 1971; Ostrom, 2003). This is the definition of public goods, also commonly
referred to as common pool resources, generally followed in empirical studies examining the
provision of natural resources and problems of environmental degradation. In this study, the
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provision of a public good is equated to an increased adoption of green building, and thus,
reduced environmental degradation.
Since Olson’s theories, three institution-based solutions have emerged that outline
exactly how problems of collective action may be overcome. First, selective incentives may be
induced by public centralized institutions. Under this solution, the government intervenes to
provide an incentive that rewards individuals for taking part in the provision of public goods. By
selective incentives, private benefit is tied to the production of a public good. Although Olson
envisioned selective incentives as potentially created by individuals, firms and entrepreneurs, the
most common conception of selective incentives is the provision of regulation by public
centralized institutions(Ingram & Rao, 2004) .
Second, institutional structures can be altered through the creation and adoption of
private decentralized institutions. Private decentralized institutions include voluntary trade
associations, certifications, and industry standards. Through creating smaller groups that can
more effectively coordinate, trade associations allow organizations to act in their collective
interests. Through reduction of transaction costs, smaller groups can act in a concerted effort to
bring about desired institutional changes. While the selective incentive perspective relies on
public institutions, such as national and local governments, to restrict acts that contribute to the
erosion of the public good or incentivize actions that will create public goods, this approach is
more focused on the role of private action. They may utilize a variety of tactics including protest
against parties who erode the public good, normative tactics arguing for the “rightness” of the
good or cognitive tactics, which simply increase overall awareness of the good (King et al.,
2000).
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Finally, while Olson briefly alluded to the role of entrepreneurs in creating collective
action, this has remained an underdeveloped perspective. While the literature on institutional
entrepreneurship has explained the theoretical role of individuals in directly shaping institutions,
it does not explain how the central operational act of entrepreneurship, the creation of new
businesses (Shane, 2004), influences institutional change. The founding of new ventures might
increase the provision of the public good in two ways (York & Sarasvathy, 2008). First, by
creating a for-profit firm which focuses on also provisioning a public good (Dean et al., 2007),
entrepreneurs can create a vehicle for diverse stakeholders to collaborate. Second, by providing
products and services that support public good, entrepreneurs can provide the necessary supply
chain for incumbent firms to support the public good.
In the following sections, I review in greater detail these three mechanisms through
which public goods may be fostered through collective action, and develop explanations about
their interaction will affect the growth of green building in the U.S.
1.4.2
Public Institutions – The Role of Government
Many collective action theorists would explain the success of the LEED program as the
result of governmental intervention to create selective incentives (Olson, 1971). Because the
benefit of a public good is available to all, there is no incentive for rational individuals to exert
effort to provision it. The free rider problem is prevalent throughout the literature of collective
action, and has been the subject of numerous experiments. The overall conclusion of these
studies is that selective incentives can have an effect on the choice of individuals, but in cases in
which there are already norms of reciprocity and trust, can actually foster defection (Kollock,
1998; Ostrom, 1998).
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The creation of new industries is a situation in which reciprocity and trust has not often
been established. As players converge to create new fields, they struggle to gain legitimacy for
their particular model (Aldrich & Fiol, 1994). Until an industry can coalesce around a dominant
design (Geroski, 2003) for the new product or service, the industry will be flooded by new
entrants with competing designs. Under such circumstances, incumbent firms are unwilling to
take a risk on embracing the newly proposed product or service, often waiting for winners to
emerge. If the industry seeks to differentiate itself based on its superior performance in providing
a public good (i.e. environmental performance), such as was the case in green building, the
uncertainty could be even greater, as it is unclear that those who adopt the new concept will not
be “suckers” provisioning a public good to free riders.
Olson’s original insight was that the creation of some exclusive incentive, available only
to those who participate, could accelerate the production of the public good. In fact, he proposed
that for large groups, this would be the only available solution to foster collective action. Hardin
typifies this view in his canonical The Tragedy of the Commons(1968) explaining that “Ruin is
the destination toward which all men rush, each pursuing his own best interest in a society that
believes in the freedom of the commons. Freedom in a commons brings ruin to all.”
This framing of the collective action problem is especially prevalent amongst the
organizational literature on environmental sustainability (Buchholz, 2004; Gladwin & Kennelly,
1995; Shrivastava, 1995; Starik & Marcus, 2000) . For example, Gladwin et al. write, “A green
and equitable economy is possible …. policy instruments and economic incentives are required
to place preemptive constraints on the pursuit of purely market criteria bearing upon natural
resource use and satisfaction of basic human needs” (Gladwin et al., 1995).
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Institutional theorists have focused on the role of private centralized institutions in
fostering the adoption of new technologies and creation of new industries. Public institutions are
defined as state-driven laws, regulations, and incentives (Ingram et al., 2002). The regulative
environment is the direct result of the state’s selection and enforcement of acceptable or
preferred practices. At a foundational level, the state can act to facilitate exchange through
providing a legal system. Legal systems and state enforcement can decrease transaction costs
through allowing individuals to engage in credible commitments. There is empirical evidence
from a wide range of settings that increased legal constraints on organizations can increase their
overall likelihood of success (for a review see Ingram et al., 2002 page 11). Through certifying,
monitoring and endorsing the activities of organizations, the state can increase the perception of
legitimacy for the organizations activities. For example, Ingram and Rao (2004) detailed the
impact of anti-chain store laws on the legitimization of the chain store model. Through creating a
sense of legitimacy, private-centralized institutions can lay the foundation for other institutional
forms, such as culture, to evolve.
Public centralized institutions provided by the state can also directly influence the
direction of industrial sectors through providing incentives, such as tax breaks, or regulatory
requirements for the adoption of specific practices. Hiatt and Sine (2008) found that regulatory
prohibitions on the consumption of alcohol not only increased the failure of breweries, but also
increased the founding of soft drink producers. These types of efforts are selective, and aim to
promote particular sectors or practices over others. Thus, public institutions which are created to
support the adoption of new practices or standards will be expected to have a positive effect on
the adoption of those standards.
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In the case of LEED, public policy has been created from 2000-2008 at the state level
incentivizing the adoption of LEED. While LEED offers a new technology for overcoming the
problem of information asymmetry, it is not clear that it could have succeeded without support
from the government. As of May, 2008, there were 41 state-level policies and incentives for
green building enacted (USGBC, 2008c). These incentives ranged from tax rebates to expedited
permitting processes with the most frequent incentives being payments from utility energyefficiency programs and direct monetary payment in the form of a grant or rebate (Yudelson
Associates, 2007). These programs provided a selective incentive available only to those who
adopted the LEED certification program, and thus, would be expected to encourage the adoption
of the program. These programs were enacted differentially across the U.S., with 27 states
featuring a policy encouraging the adoption of LEED by 2007. This context provides a natural
experiment to examine the efficacy of public centralized institutions in fostering the adoption of
a private decentralized institution. Thus:
Hypothesis 1: State policies that support LEED registration will increase the
number of LEED registered projects.
While the effect of state regulation has received some examination, the relationship
between private centralized institutions and public decentralized institutions remains unclear.
Past studies have shown that private decentralized institutions often focuses on the creation of
new regulatory institutions, but how the simultaneous presence of both can influence adoption of
voluntary certification standards has not received as much attention. In the remainder of this
section, I explain how a variety of private institutions could positively moderate the effect of
state policy on adoption of voluntary standards.
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1.4.3
The Mutually Supporting Nature of Public and Private Institutions
The public centralized view of institutional change suggests we will see very little largescale collective action to create public goods. When we do see such action, we should expect that
it would only take place when the right institutional setting has been fostered through
government intervention. However, empirically we know that many large-scale groups organize
to foster collective action (Ostrom, 1990; Ostrom, 1998). For example, the conservation
movement, efforts to abolish capital punishment and food banks all cannot be logically construed
to operate only because of selective incentives which align self-interest to the public good.
Private decentralized institutions are typified by voluntary norms of conduct; they are often
unwritten, but the real contrast between public and private institutions is the nature of
enforcement. Norms are sustained by the unwanted emotions (guilt, embarrassment, shame) an
individual feels when not complying with them. On the contrary, other types of norms, such as
legal norms, are “enforced by specialists who do so out of self-interest: they will lose their job if
they don't…social norms are enforced by members of the general community, and not always out
of self-interest” (Elster, 1989, 100). Private decentralized institutions do not have the authority
of the state, and participation is voluntary. This does not mean they lack power, but that they
derive their authority from normative rather than regulatory basis (Scott, 1995).
While theorists have explained the impact of public institutions and private decentralized
institutions on the adoption of new industries, they have often done so by treating each in
isolation. Often the choice is depicted as a dichotomy; either the government must intervene or
private action is the only solution. The more interesting question is how public and private
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institutions intertwine to encourage the voluntary adoption of policies which increase the public
good, such as voluntary certification standards.
Ostrom has pointed out that institutions are rarely purely public or purely private and
defy dichotomy (1990). Public institutions may set the rules of the game, which cannot be opted
out of, but private decentralized institutions show organizations how to play the game. When
states incorporate policy to support an industry, they may do so without the infrastructure or
expertise to support the change. This would be especially true in the case of encouraging the
adoption of voluntary certification standards. Although governments may have the political will
and power to force legitimacy upon new practices, they may struggle to increase adoption of
these practices when there is a lack of infrastructure, supplier networks or prior knowledge.
Without the establishment of private efforts to legitimize the practice (Suchman, 1995) and
spread knowledge, policy may have little effect. In short, the efficacy of government action is
contingent on private action.
Private institutions may moderate the efficacy of public efforts to increase adoption of
voluntary standards through at least 3 mechanisms: 1) voluntary trade associations which express
an group of organizations support for the new standard, 2) through individuals who are educated
to assist in achieving the standard whom can act as market intermediaries and 3) through the
creation of new innovations, products and services which may present opportunities to support
the standard, or to incorporate it into the new business.
At an organizational level, private decentralized institutions operate amongst individuals
within an organization, but also at an inter-organizational level (Ingram et al., 2002). Voluntary
industry self regulation is one example of private decentralized institutions which act to bind the
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fates of firms together (Lenox, 2006). Also, voluntarily enrolling in trade associations for
emergent technology can represent another form of private-decentralized institutions.
Collective action theorists have described such actions as fostered by “extrarational”
motivations including moral motivations and the desire for self-fulfillment (Hardin, 1982).
Individuals may take part in such movements because they believe they are in the moral “right”
and that they are fighting for a just cause, or they may simply eagerly embrace the opportunity to
make some kind of a difference in the world, to be part of something bigger than them.
Regardless of motivation, when organizations form around these ideas, there are implications for
the production of public goods.
Private decentralized institutions can act as a fulcrum to galvanize collective action.
Through activities that promote their cause and recruiting of new members, these movements can
create new norms and impact public opinion. Trade associations can act as a legitimizing
mechanism for organizations concerns; as they grow in size this effect is enhanced. Also,
individuals may be more willing to put forth moral effort only when the group size reaches
critical mass and thus the chance for success is greater. As Hardin puts it, “…one would act from
a desire to participate in one’s history only if enough others were participating to make history”
(Hardin, 1982). By joining multiple organizations together, voluntary associations can create a
snowball effect, encouraging organizations to join and demonstrate their normative legitimacy.
Thus, trade association membership acts as a powerful mechanism for encouraging voluntary
standards, as membership numbers increase, adoption of standards should increase.
The actions of the USGBC to create and spread the LEED certification program typify
such efforts. By creating a system for consumers to become aware of the environmental benefits
of their construction choices, LEED reduces information asymmetry between property buyer and
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builders. Through joining the USGBC, organizations expressed normative support for green
building as the correct choice for new projects. Thus, USGBC membership acts to reduce
information asymmetry about an organization, but demonstrating its commitment to
environmental principals, while at the same time encouraging the adoption of the LEED
standard. Without the ability to follow and implement LEED certification, policy could have
little effect; to be useful, industry facts must be organized and compared (King, Lenox, &
Barnett, 2002). Environmental groups have been influencing laws that reap benefits far beyond
their personal benefit for decades, and the mere presence of USGBC membership may drive
legislation, and thus, green building activity in a state. I argue that when high adoption of private
decentralized institutions are coupled with public institutions there will be an amplified effect on
the desired outcome, in the case of green building, the adoption of LEED. Thus,
Hypothesis 2: The number of USGBC members in a state will positively moderate
the effect of state policies on the number of LEED registered projects in that state.
Market intermediaries can be a key constituent in the creation of new industries and the
adoption of new practices (Akerlof, 1970; Khanna & Palepu, 1999). Market intermediaries are
defined as an economic agent that helps buyers and sellers to transact (Spulber, 1996). In the
case of adoption of voluntary certifications, intermediaries would bring specialized knowledge of
the standard, and how to achieve it to market. They cannot grant the certification, but instead act
in a consulting role to help others to achieve it. Without efforts of private individuals and firms
to act as intermediaries, policy may have limited effect. For example, Lounsbury (2001)
discussed the role student organizations and educational levels in encouraging the adoption of
university recycling programs. Khana and Palepu (1999) found that the role of intermediaries
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was associated with improved stock market performance and accounting in Chile. Although
government action can create economic incentives for individuals to act, without information
about how to act, it becomes difficult for coordinated action to take place. The presence of
intermediaries can also foster cultural-cognitive legitimacy by simply increasing awareness of a
voluntary standard in a population (Scott, 1995; Suchman, 1995). Thus, public institutional
efforts to encourage adoption of voluntary standards should have a greater effect in a population
with greater numbers of individuals educated on the standard and ready to act in an intermediary
role to assist in its adoption.
The USGBC has also attempted to foster cognitive legitimacy by increasing education and
awareness of green building through certifying individuals as green building experts. Through
creating a LEED Accredited Practitioner (AP) program, the USBC allowed for verification that
certain individuals could ascertain whether a building would truly be “green.” Through taking a
rigorous accreditation tests, architects, project managers and builders can become LEED APs
and thus offer a new service of consulting on LEED projects. The more APs there are operating,
the greater cognitive legitimacy because a greater proportion of the population is trained in, or
knows someone who is trained in, green building processes. In addition, through acting as
market intermediaries, LEED APs can contribute to a greater adoption of green building
practices. Thus,
Hypothesis 3: The number of LEED Accredited Practitioners in a state will
positively moderate the effect of state policies on the number of LEED registered
projects in that state.
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USGBC membership and LEED APs should not be conflated. The USGBC cannot be joined
by individuals, but only by organizations; thus it operates more as a trade association than as a
social movement made up of individuals. Conversely, LEED AP certification is granted at an
individual level. A firm that belongs to the USGBC may employ LEED APs, however, a LEED
AP may also be an independent contractor or consultant; they are not required to work for a
USGBC member firm. In my conversations with LEED APs I found that many of them are in
fact either self-employed, or wanted the certification to enhance their career prospects and
involvement in green building; they were not necessarily compelled to achieve the certification
by their firm. By having a LEED AP as part of a LEED project, the project can achieve one point
towards certification, but it is not a requirement that LEED AP be involved to achieve LEED
certification. Nor is USGBC membership a requirement for achieving LEED certification. So,
while USGBC membership and LEED AP certification levels can theoretically be expected to
impact the adoption of LEED in a state, they are not necessarily endogenous to LEED projects.
1.4.4
Entrepreneurial Climate – The Role of the Entrepreneurship
While public and private institutions have both been empirically demonstrated to impact the
creation of new industries, the mechanism by which institutional change creates these results is
less clear (Russo, 2001, 2003; Sine et al., 2005; Sine et al., 2007). Entrepreneurial action,
defined as the founding of new businesses, is one mechanism that can help explain the diffusion
of institutional change.
Olson alluded to a role for the entrepreneur in his original logic of collective action, stating
that “… imaginative entrepreneurs will be able to find to find or create selective incentives that
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can support a sizeable and stable organization providing a collective good to a large group. The
successful entrepreneur … is above all an innovator with selective incentives” (Olson, 1971).
Recent contributions have offered an alternative explanation for the necessary conditions to
create public goods. Entrepreneurial action has been recently discussed as a method to address
environmental degradation (Cohen et al., 2007; Dean et al., 2007; Sine et al., 2007). It has been
suggested that the entrepreneurs can address the problem of public goods, through creating
property rights and utilizing technology, but also through the reduction of information
asymmetry (Dean et al., 2007).
When state institutions create new incentives, it is clear that an economic opportunity is
revealed; one that alert entrepreneurs may seek to exploit (Hayek, 1968). Also, when private
activism takes place, entrepreneurs may take notice that a large group of individuals value a
public good highly enough to dedicate their efforts to its protection, representing another form of
entrepreneurial opportunity. For example, Sine documents the role of the Sierra Club creating
networks for early entrepreneurs in the wind power industry (Sine et al., 2007).
However, entrepreneurial action is where “rubber meets the road” in the adoption of new
voluntary certification standards. The actions of entrepreneurs are one mechanism by which
institutional changes succeed or fail. When new standards are formed through public and private
institutional change, alert entrepreneurs can leverage these opportunities to create simultaneous
private and public goods. Even the most efficacious government policy will have a reduced
impact without entrepreneurs setting in motion a new variety of firms and services to exploit it.
Similarly, when private activists engage in the creation of new norms and beliefs, entrepreneurs
provide the mechanism for translating these new ideas into concrete products.
23
For example, in the green building industry, the creation of LEED incentives and activism by
the USGBC has created simultaneous economic and moral motivation for builders to engage in
green building. However, the market for green building, while growing, had not reached the
critical mass required for builders to engage in re-educating themselves to take part in the new
industry. Nor can incumbent firms diversify into the process of creating new green building
supplies that will support their ability to engage in a LEED project without a critical mass of subcontractors to diversify the supply chain. While they may want to engage in green building, they
cannot recast their entire business model around it. Thus, an entrepreneurial opportunity emerged
for LEED consultants to provide a new service. Another opportunity emerged for firms to create
and deliver a supply of building supplies with a reduced environmental impact. When these
services are more readily available, they decline in price and encourage the creation of more
green building projects.
Entrepreneurial growth, defined as an increase in the founding rates of new businesses, can
help to contribute to the adoption of voluntary certification programs, because the increased
entrepreneurial activity will increase the chances that opportunities to adopt the program will be
addressed. Through experimentation in new services and products, entrepreneurial firms can
push towards the creation of effective means to meet the new programs standards. Also, the
creation of new businesses increases the chances for firms to adopt voluntary standards from the
start, before they have developed path dependency. Thus,
Hypothesis 5: Growth in business creation in a state will positively moderate the
effect of state policies on the number of LEED registered projects in that state.
24
In addition, entrepreneurial opportunity recognition has been shown to be tied to individual
differences (Venkataraman, 1997) prior knowledge (Shane, 2000) and perceived customer
demand (Choi & Shepherd, 2004). Because entrepreneurial opportunity recognition is linked to
these different types of knowledge, and because becoming a LEED AP would increase one’s
knowledge of both how to engage in the market for green building products and services and
supply the necessary background to add value for potential clients. Thus,
Hypothesis 6: Growth in business creation in a state positively moderates the effect of the
number of LEED Accredited practitioners on the number of LEED registered projects in
that state.
25
1.5 Research Design and Methodology
1.5.1
Sample
The window of observation began in 2000, as this was the first year LEED was made
publicly available and ran through 2007, the last full year for which data was available on
adoption rates. During this time period, there were 10,014 LEED registered project originated in
the U.S. This data was acquired from the USGBC in May, 2008 and used to construct a dataset
where each observation was a state-year, as the adoption of LEED varied across states and years.
The total N is 51 states (Washington, DC is included as a state) x 8 years, or 408 observations.
Because the independent variables are lagged, I lose one year of observations, so the final N is
357 state/year observations. For my dependent variable, I operationalized adoption of a voluntary
certification program as the count of LEED registered projects in a state-year (LEED Projects).
1.5.2
Independent Variables
Public centralized institutional action was measured as the implementation of a state level
policy that supported the adoption of LEED registration. I gathered data on 41 state-level
policies (State Policy) from the Database of State Incentives for Renewable Energy and
Efficiency (DSIRE), maintained at North Carolina State Solar Center (DSIRE, 2008), and an
online database of incentives provided by the USGBC. The state level variable was coded as a
dichotomous variable, “1” if any policy was in effect for a given year and “0” if not.
Private decentralized institutional activity was operationalized as the number of USGBC
members and the number of LEED APs in a given state-year. The membership data was
collected from a public online database available at the USGBC homepage and coded as
26
continuous count variable (USGBC Membership). The LEED Accredited Practitioner (APs) data
was provided by the Green Building Certification Institute data in August, 2008 and also coded
as a continuous count of the total number of LEED APs certified in a state-year.
1.5.3
Control Variables
I entered four control variables. I began with the population for each state year to control
the positive effect of an increase in population on the number of projects in a state, but this
control was highly correlated with state income levels, so it was dropped from the final model.
Instead, I controlled for state income levels (Gross Domestic Product) to control for the
likelihood that states with higher income may be able to more easily afford the additional cost
represented by LEED registration. I next controlled for the overall rate of construction by
including the number of residential building permits issued (Building Permits). This data is
collected annually by the U.S. Census bureau and was obtained from a publicly available website
(http://www.census.gov/const/www/C40/table2.html#annual). I next controlled for the overall
political climate by including the states cumulative score from the League of Conservation
Voters (LOCV Score) scorecard. The scorecard awards points based on how members of
congress from a state voted on environmental measures, and thus represents the political support
in a state for environmental causes. The data is publicly available at the League of Conservation
Voters’ website.
My final control was for the overall level of entrepreneurship in a state. The founding of
new firms (Entrepreneurship) was measured utilizing the Kaufman Index of Entrepreneurial
Activity (KIEA) (Fairlie, 2008). The KIEA measures the percent of individuals (ages 20-64)
who do not own a business in the first survey month that start a business in the following month
27
with 15 or more hours worked. For this article, I utilized the annual summary report on state
levels of entrepreneurial growth as a proxy for entrepreneurial activity in each state/year. This
data is publicly available at http:/www.kaufman.org/kaufmanindex. Unfortunately, although
there is public data on the construction industry, it is not available at the state level.
1.5.4
Analysis
I utilized a random effects negative binomial model to measure the rate of LEED
registered projects in each state adopting a log-linear relationship between projects and the
independent variables. I used the random effects model because it takes into account the
clustering of observations (in this case, by states) by ensuring that dispersion varies randomly
from cluster to cluster. Because my dependent variable is event count data, a Poisson regression
would seem like the logical model choice. However, the data set violates several assumptions of
the Poisson process, including the assumption that the mean and variance are the same
(overdispersion) (Hilbe, 2007). Because overdispersion was present in my sample, I utilized a
negative binomial model, lagging the dependent variable by one year as recommended by
Hausman et al. (1984) when dealing with overdispersed count data.
Alison and Waterman (2002) have shown that the fixed effects negative binomial model
is not a true fixed effects model, as it does not control for all stable covariates. This is because
the model is based on a regression decomposition of the oversdispersion parameter rather than
the mean. I therefore follow Hilbe’s (2007) recommendation to utilize another panel model, the
random effects negative binomial model.
28
1.5.5
Results
Table 1 presents the descriptive statistics and the correlations between the variables.
Table 2 presents the results of the random-effects negative binomial model.
--------------------------------------------------------------------------------------------------------------------Take in Table 2 and 3
--------------------------------------------------------------------------------------------------------------------Correlations were relatively low among the independent variables, except between
USGBC and LEED APs. Because this high correlation could suggest problems with collinearity,
I checked the independent variable and the overall model using a Variance Inflation Factor test
(VIF). All of the variance inflation factors were less than 8 and most were below 4 indicating
and acceptable level of multicollinearity (Chatterjee & Hadi, 2006). All independent variables
reported are lagged by one year.
Model 1 in Table 2, the base model with only control variables, illustrates that LEED
registration is higher in states with higher GPD and GDP Growth (p<.001). Furthermore, the
number of LEED registrations is also higher in states with a higher degree of cultural support for
environmental protection, as represented by the League of Conservation Voters score (p<.05).
Models 2-6 present the results of my hypothesis tests added onto this base model.
Model 2 tested the effects of the primary independent variables of interest. State Policy
has a positive and significant coefficient (p<.001), which is consistent with Hypothesis 1.
Therefore, the presence of a state level policy supporting LEED adoption positively influences
the number of LEED registrations in that state. The presence of a state policy increases LEED
registration by 77%. USGBC Membership/10 has a positive and significant coefficient (p<.001),
29
implying that higher levels of USGBC membership in a state positively influences LEED
registration in that state. For every 10 organizations that join the USGBC in a state, LEED
registrations increase by 16%. LEED Accredited Practitioners (APs) and Entrepreneurship had
no significant effects.
Model 3 adds the interaction term between the presence of a state policy supporting
LEED adoption and USGBC membership. The main effects of State Policy and USGBC
Membership continue to be significant and positive. The interaction term State Policy x USGBC
has a positive and significant coefficient (p<.01), which is consistent with Hypothesis 2.
Therefore, state policies supporting LEED adoption have a greater positive effect in the presence
of greater USGBC membership. For every 10 organizations that join the USGBC in a state with
a policy supporting LEED, LEED registration increases by 7%.
Model 4 inserts the interaction term between the presence of a state policy and the
cumulative number of LEED Accredited Practitioners in the state. The main effects of State
Policy and USGBC Membership continue to be significant and positive. The interaction term
State Policy x LEED APs has a positive and significant coefficient (p<.01), which is consistent
with Hypothesis 3. Therefore, state policies supporting LEED have a greater positive effect in
presence of higher numbers of LEED Accredited Practitioners. For every 10 individuals who
successfully complete their LEED AP test in a state, LEED registrations increase by .3%.
Model 5 features the interaction between the presence of a state policy and the growth of
new business creation in the state. The main effect of USGBC Membership continues to be
significant and positive. However, the main effect of State Policy is no longer significant. The
interaction term State Policy x Entrepreneurial Growth has a positive and significant coefficient
(p<.05), which is consistent with Hypothesis 4. Therefore, the effect of state policies supporting
30
LEED adoption is greater in presence of higher levels of new business creation. For every 1%
growth in the founding rates of new businesses in a state, LEED registration increases by 2%.
Model 6 introduced the interaction between the number of LEED Accredited
Practitioners in a state and growth of new business creation. The main effects of State Policy and
USGBC Membership continue to be significant and positive (p<.001). In addition, the main
effects of Entrepreneurship (p<.01) and LEED APs (p<.001) were positive in this model.
However, the interaction term LEED APs x Entrepreneurial Growth is negative and significant
(p<.001) opposite of the relationship predicted by Hypothesis 6. Thus, Hypothesis 6 was
rejected.
To further explore this interaction, I split the population into states with above average
growth in new businesses (High Entrepreneurial Growth) and below average rates of new
businesses (Low Entrepreneurial Growth). Model 7 introduces interaction terms for each with
the number of LEED APs in a state. The interaction term High Entrepreneurial Growth x LEED
APs was not significant. The interaction term Low Entrepreneurial Growth x LEED APs was
significant and positive (p>.01). This suggests the number of LEED APs has a greater effect on
LEED registrations in states have lower than average rates of entrepreneurial growth. In states
experiencing lower than average rates of entrepreneurship, the presence of 10 LEED APs
increases the number of LEED registered projects by .4%. The main effects of State Policy was
not significant, however, USGBC Membership continued to be significant and positive (p<.001).
In addition, the main effect of Entrepreneurial Growth (p<.01) was positive and significant in
this model. The interaction term State Policy x USGBC Membership continued to be positive and
significant in this final model (p<.01)
31
In summary, the results were consistent with the hypotheses, except for the findings of a
relationship opposite of Hypothesis 6. The hypotheses and findings are summarized in Table 3.
--------------------------------------------------------------------------------------------------------------------Take in Table 3
--------------------------------------------------------------------------------------------------------------------Further analysis revealed significant effect of LEED APs in states with lower than
average entrepreneurship, suggesting a substitution effect which was not predicted. I discuss the
implication of these findings for theory and future research below.
32
1.6 Discussion
The influence of public and private institutions on the adoption of new practices has received
a great deal of attention in the neo-institutional literature, but the literature has told us little
about “how these forces interact and for which types of populations each mode is most salient”
(Scott, 1995). This study provided further empirical substance to the emerging synthesis between
neo-institutional theory and the literature on voluntary certification standards by showing how
organizational interest, market intermediaries and new business creation can create an
institutional environment which enhances the efficacy of state policies. The results indicate that a
combination of public and private institutions foster the greater adoption of the voluntary
certification standards. The results also showed that market intermediaries are of greater
importance in populations with lower levels of entrepreneurship. This implies the founding of
new businesses can act to increase the adoption of new practices in an industry.
The results illustrate the relationship between simultaneous private and public efforts to
ensure the adoption of a new, voluntary standard. Previous research has illustrated that state
incentives often work, and that private efforts to obtain legitimacy for these practices have an
effect, but few have examined how these forces interact to institutionalize new practices. While
voluntary standards have proliferated across industries, and provide a key mechanism to reduce
information asymmetry and protect consumers, we understand little about how they achieve
critical mass and adoption. By showing the positive effect of widespread interest and
organizational support for a standard, this study illustrates the important role that voluntary, nontrade associations can play in legitimizing new practices and standards. Also, the role of market
intermediaries is further supported, illustrating the need for simultaneous public efforts to
33
incentivize adoption coupled with private educational activism. Finally, although the founding of
new firms has been the dependent variable in many institutional studies, the role of new firm
founding in the institutional process has received little attention. The results of this study
illustrate that the founding of new firms can be an important moderator of adoption, even in the
presence of state policies and private institutions.
The interaction between LEED APs and entrepreneurship was another important finding.
I hypothesized that the number of LEED APs in a state would have a positive effect on the
number of green building projects in a state because their presence would increase cognitive
legitimacy, that is, because APs have specific knowledge of LEED practices they represent a
greater awareness and saturation of the techniques and advantages of green building. I argued
that higher levels of firm foundings would positively moderate this effect because new firms
would represent chances to support adoption through new products and services.
The interaction term was significant and negative, and model fit was significantly
improved, suggesting that both APs and entrepreneurial growth positively influenced the number
of green buildings in a state. However, the presence of both erodes the effect of each variable.
Troubled by this result, I wanted to better understand this relationship. By splitting the
population into high and low entrepreneurship, this relationship was made clearer. LEED APs
have a greater positive effect on green building rates when there is a low entrepreneurial growth
in a state. This suggests that general growth in entrepreneurship can compensate for a lack of
specific knowledge in the realm of green building, and that the presence of LEED APs in a state
may increase green building projects in populations lacking strong entrepreneurial growth.
These findings suggest that specific knowledge is a more important factor in adoption of
new standards when overall entrepreneurship is happening at a slower rate. In an environment of
34
high entrepreneurial growth, specific knowledge has less impact because there are many
businesses being founded, increasing the odds that some of these firms will address opportunities
that may have been previously only discovered through prior knowledge (Shane, 2000). Because
entrepreneurial growth represents many attempts by multiple individuals to discover and exploit
opportunity, it creates an environment in which there is less reliance on the creative aspects of
entrepreneurship, which can only be fostered from individual knowledge sets.
This relationship between specific knowledge and general entrepreneurial growth could be
even stronger in cases where an industry is specifically attempting to create a public good.
Strong normative support, represented in this study by USGBC membership, could create an
environment in which entrepreneurs are more easily able to secure resources due to the
“rightness” of their endeavors. Thus, in states where general entrepreneurial growth is high, and
there is strong normative legitimacy for a field, it is likely that entrepreneurs would enter that
field regardless of their specific knowledge of it. This would explain why LEED APs
effectiveness is diminished in highly entrepreneurial states, but increased in those states with
slower firm founding rates.
The results also contribute to the emerging literature on environmental entrepreneurship
by offering one of the first empirical studies to examine the specific role of new firm foundings
on the creation of environmental benefits through voluntary certification. What explains the
significant positive relationship between entrepreneurship and LEED adoption? Other than
acting as a substitution for industry-specific knowledge, entrepreneurship could contribute to
resolving collective action problems through two mechanisms.
First, by founding small firms, entrepreneurs engage in creating Olson’s concept of
“federated cells”, that is, smaller groups in which coordination to produce the public good is
35
more easily achieved. While large firms may find it difficult to take on the risky choice of
engaging in an unproven, yet publicly beneficial technology, such as LEED certification, smaller
firms may whole-heartedly embrace the new technology, as they have little path dependency and
no concern about cannibalization of existing profit streams.
Second, by embracing both economic and social motivations for founding a firm,
entrepreneurs who initiate firms with an explicit focus on both private (economic) and public
(ecological) goods can erode the need for selective incentives. By creating a mechanism (the
firm) in which individuals who value economic goods and individuals who value social goods
can collaborate, entrepreneurs can set the stage for new innovations and collaborative
partnerships.
Finally, I extend the literature on collective action by adding to our understanding of how
seemingly intractable collective action problems are solved. I show that entrepreneurial action
may be a significant, yet little understood factor in overcoming collective action problems.
While this study illustrates the potential role of new firm foundings in fostering adoption it
suffers from some limitations. Most obviously, the growth of entrepreneurship I measure is not
an indication specifically of entrepreneurial action that necessarily contributed to green building,
or even the construction industry. However, the significant, positive results that I report begin to
illustrate the potential for understanding the role new firm foundings broadly play in institutional
change. Even if new firms do not directly contribute to adoption of new standards, higher firm
founding rates positively influence adoption by creating an institutional climate that favors
“taking a chance” on a new process. In the case of green building, it also implies that new firms
may seek to engage in green building practices as they engage in construction.
36
Clearly this study can but scratch the surface of understanding the emergence of the green
building industry, much less the role of entrepreneurial action in overcome collective action
problems. One question that is not addressed here is the endogenous nature of these institutional
changes. Did entrepreneurs help to foster the creation of green building, or did state incentives
simply create an opportunity that they rushed to fill? Does the creation of more green building
projects simply increase the likelihood that a state will create an incentive? How do the types of
organizations (architects, builders, consultants, etc.) who join the USGBC in a state impact the
effectiveness of the overall organization?
This study is one small step to begin building an empirical understanding of what may be
the most important, yet least understood role of entrepreneurial action, the creation of public
benefit through private action.
37
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Meeting, Anaheim, CA.
Yudelson Associates. 2007. Green Building Incentives that Work. Tucson, AZ: National
Association of Industrial and Office Properties (NAIOP) Research Foundation.
Yudelson, J. 2007. The Green Building Revolution. Washington, DC: Island Press.
42
1.8 Table 1 – Key Factors in Obtaining LEED Certification (LEED-NC)
LEED Prerequisite
1. Sustainable Sites
Key Issues Addressed through Credits
Develop only on appropriate sites, provide for non-auto access,
preserve open space, reduce light pollution
2. Water
Conservation
Reduce use of potable water for irrigation and for sewage
conveyance
3. Energy and
Atmosphere
Reduce energy use, use less harmful refrigerants, generate
renewable energy on-site, provide for ongoing energy savings,
purchase green power
4. Materials and
Resources
Provide for recycling, reuse existing building, reduce
construction waste, use rabidly renewing materials, use regionally
sourced materials
5. Indoor
Environmental
Quality
Improve indoor air quality, increase outside ventilation, use only
nontoxic finishes, carpets, and composite wood products, provide
individual comfort control, provide daylighting and views to
outdoors
6. Innovation and
Design Process
Provide for exemplary performance beyond LEED standards, use
of LEED Accredited Professionals on design team
Source: (USGBC, 2005; Yudelson, 2007)
43
1.9 Table 2 – Variable Descriptive Statistics and Correlations
Variables
LEED Projects
GDP
Change in GDP
GDP per Capita
Building Permits
LOCV Scores
State Policy
USGBC Membership
LEED APs
Entrepreneurship
Mean
Std. Dev.
24.544 61.381
11.763
1.044
0.054
0.026
0.041
0.028
35.194 43.651
88.545 58.260
0.126
0.332
1.564
2.505
22.283 50.366
29.517
9.351
1
2
3
4
5
6
7
8
9
0.44
0.11
0.07
0.42
0.13
0.23
0.88
0.89
0.02
-0.14
0.07
0.71
0.13
0.20
0.63
0.48
-0.25
0.06
0.07
-0.15
0.03
0.05
0.12
0.26
-0.04
-0.11
0.00
0.04
0.08
-0.20
0.02
0.01
0.58
0.43
0.01
0.33
0.19
0.15
-0.22
0.27
0.25
0.04
0.88
0.00
0.01
44
Table 3 – Random Effects Negative Binomial on LEED Projects
1.10
Variables/Model#
Controls
GDP (ln)
Change in GDP (percent change
in current dollars)
GDP per capita
Building Permits/1000
League of Conservation Voters
score
1
2
3
4
5
6
7
0.451***
(0.093)
0.285***
(0.089)
0.283***
(0.089)
0.275***
(0.088)
0.288***
(0.088)
0.250**
(0.085)
0.266**
(0.084)
8.059***
6.015***
5.070**
4.876**
5.992***
6.154***
4.791**
(1.986)
4.769*
(2.176)
-0.002
(0.002)
(1.866)
4.090**
(1.942)
0.002
(0.002)
(1.899)
4.516*
(2.018)
0.002
(0.002)
(1.923)
4.250*
(1.968)
0.002
(0.002)
(1.855)
(1.822)
4.770**
(1.904)
0.003 †
(0.002)
(1.899)
4.235*
(1.907)
0.002
(0.002)
0.002*
0.001
0.001
0.001
0.000
0.001
0.001
(0.001)
(0.001)
(0.001)
(0.001)
(0.001)
(0.001)
(0.001)
0.777***
(0.127)
0.158***
(0.028)
-0.000
(0.001)
0.005
(0.006)
0.504**
(0.161)
0.123***
(0.029)
0.001
(0.001)
0.007
(0.006)
0.587***
(0.150)
0.151***
(0.027)
-0.000
(0.001)
0.006
(0.006)
0.155
(0.369)
0.159***
(0.027)
-0.000
(0.001)
-0.000
(0.006)
0.506***
(0.129)
0.201***
(0.023)
0.016***
(0.003)
0.015**
(0.006)
0.266
(0.188)
0.153***
(0.030)
Independent Variables
State Policy
USGBC Membership / 10
APs/10
Entrepreneurial Growth
Interactions
State Policy x USGBC
Membership
3.650†
(1.948)
0.002
(0.002)
0.01 †
(0.006)
0.069**
0.066**
(0.024)
(0.027)
State Policy x LEED Accredited
Practitioners (APs)
0.003**
(0.001)
State Policy x Entrepreneurial
Growth
.021 †
(0.011)
Entreprneneurial Growth x LEED
APs
-0.001***
(0.000)
Post Hoc Analysis
Low Entrepreneurial Growth x
LEED APs
0.004**
(0.001)
High Entrepreneurial Growth x
LEED APs
_cons
Number of observations
Wald chi2
-0.000
-6.306***
1.065
357
60.801
-4.286***
1.071
357
801.765
Note: *** p<0.001, ** p<0.01, *p<0.05, † p<0.1
-4.292***
1.066
357
842.955
-4.152***
1.065
357
829.463
-4.131***
1.070
357
821.028
-4.283***
1.022
357
935.879
(0.001)
-4.137***
1.023
357
867.562
45
1.11
Table 4 – Hypotheses and Results
Hypothesis (Number)
Result
1. State policies that support LEED registration will increase the
number of LEED registered projects.
Supported
2. The number of USGBC members in a state will positively
moderate the effect of state policies on the number of LEED
registered projects in that state.
Supported
3. The number of LEED Accredited Practitioners in a state will
positively moderate the effect of state policies on the number of
LEED registered projects in that state.
Supported
4. Growth in business creation in a state will positively moderate
the effect of state policies on the number of LEED registered
projects in that state.
Supported
5. Growth in business creation in a state will positively moderate
the effect of the number of LEED Accredited practitioners on
the number of LEED registered projects in that state.
Rejected
46
1.12
Appendix – Background on Green Building, USGBC, and LEED
Only five years ago the term “green building” might have evoked images of the back-tonature movement, with yurts and straw bale houses dotting a bucolic landscape. Today, however,
green building has become a significant industry, with Fortune 500 firms such as Dell, IBM,
Toyota and Bank of American heavily investing in greening their real estate portfolios. The
value of green building projects is projected to increase to $60 billion by 2010, comprising 10%
of commercial construction (Murray, 2008).
The USGBC defines green building as “design and construction practices that significantly
reduce or eliminate the negative impact of buildings on the environment and occupants”
(USGBC, 2004a). Broadly speaking, green buildings are high performance property constructed
with consideration of its impact on human health and the natural environment. Green buildings
are designed to use less energy, water and reduce the overall life-cycle environmental impacts
through improved sitting design, material selection and construction (Yudelson, 2007).
While the seeds of the green building movement were sewn by AIA activities and the Federal
government most would agree that prior to 2000, green building did not receive much attention
from the mainstream companies. Green buildings seemed to be interesting experiments, but not
something that was within the grasp of most firms. After all, how could you even tell what a
“green” building was? Did it have to use solar power? Was it made of straw bales? Did it mean
you couldn’t have lights inside? The efforts of the USGBC explicitly and relentlessly focused on
answering these types of questions with the aim of “nothing less than to fundamentally change
the build environment by creating energy-efficient, healthy, productive buildings that reduce or
47
minimize the significant impacts of buildings on urban life and on the local, regional, and global
environments” (Yudelson, 2007).
While the seeds of the green building movement were sewn by the American Institute of
Architects (AIA) and the federal government most would agree that prior to 2000, green building
did not receive much attention from the mainstream companies. Green buildings seemed to be
interesting experiments, but not something that was within the grasp of most firms. After all,
how could you even tell what a “green” building was? Did it have to use solar power? Was it
made of straw bales? The efforts of the USGBC explicitly and relentlessly focused on answering
these types of questions with the aim of “nothing less than to fundamentally change the build
environment by creating energy-efficient, healthy, productive buildings that reduce or minimize
the significant impacts of buildings on urban life and on the local, regional, and global
environments” (Yudelson, 2007).
The group that would become the USGBC started in the mid-eighties when David Gottfied, a
construction manager and Michael Italiano met when working on William McDonough’s
Environmental Defense Fund project in New York City. The New York headquarters of the EDF
was one the early examples of a high-performance green building, and working on the project
inspired Gottrfied and Italiano to initiate a series of informal meetings. Gottfried and Italiano
believed that the success of the green building movement would rest on an inclusive approach
that was not necessarily led by architects. They envisioned a voluntary organization with
representatives from each part of the building profession including engineers, builders, landscape
architects, interior designers, industry, supply manufacturers and academic institutions
(McLennan, 2006). In April, 1993, they led the first meeting of the USGBC at AIA headquarters
in Washington, D.C. with less than two dozen in attendance; later that year they held their first
48
conference simultaneous to the AIA’s Chicago conference focused on sustainability. Their first
conference was attended by over 600. In 2007, their annual conference, now called Greenbuild,
attracted over 22,835 attendees (USGBC, 2008a).
How did an organization of less than two dozen people swell to 91,000 actively engaged
individuals over a period of 14 years? The USGBC has emerged as one of the most influential
and successful social movement organizations in U.S. history, attracting organizations from a
diverse array of fields and countries. Many attribute this growth and success to the USGBC’s
flagship project, the Leadership in Energy and Environmental Design (LEED) rating system. By
2008, every day $464 million worth of construction would register with the LEED program
every day (USGBC, 2008a).
The creation of reliable building rating systems has played a major role in changing
corporate perceptions of green building. Green building standards are not a U.S. innovation; in
1990 the UK government created the first widely recognized green building standard when it
launched BREEAM, the Building Research Establishment’s Environmental Assessment Method.
The members of the nascent USGBC were aware of the UK’s leadership in standards and set as
their first goal was to establish a sustainability rating system for new buildings. The original plan
was to work with the American Society of Testing and Materials to design a rigorous standard,
but over a two-year effort, it became clear that the ASTM’s methods were proving too slow
(Building Design and Construction, 2003). In1992 a joint effort between the EPA and DOE
resulted in the introduction of the Energy Star labeling system which promoted energy efficient
products. However, Energy Star did not cover buildings at the time. Frustrated by their lack of
progress, in 1995 the USGBC formed a committee the leadership of Rob Watson, a senior
49
scientist with the Natural Resources Defense Council. The formation of this committee marked
the first naming of the LEED program.
Over the next three years, the committee reviewed, and rejected, various rating models.
The quickest route would have obviously been to simply adopt BREEAM, but according to
Watson, this path was rejected for two reasons. First, BREEAM required an elaborate
infrastructure, and, second, it was seen as too focused on carbon dioxide emissions and not
addressing a broad array of environmental issues (Building Design and Construction, 2003).
LEED 1.0 was finally introduced in 1998. A pilot program, which received funding from the
DOE, quickly exposed some shortcomings. Many of the credits were already standard practices,
or, were too tightly prescriptive to be met. Also, users reported that the reference guide was too
brief. In 2000 LEED 2.0 was released for public use. While less than 1,000 projects were
registered in this first year, the LEED program has grown tremendously, along with growth of
the USGBC.
The LEED system works by assigning points to a building project based on six criteria
areas:
1. Sustainable Sites
2. Water Efficiency
3. Energy and Atmosphere
4. Materials and Resources
5. Indoor Environmental Quality
6. Innovation and Design Process (USGBC, 2008b)
50
In order to be considered for LEED certification building projects must first be registered. Then,
upon completion of the project, the project administrator will submit documentation for
consideration by the USGBC. Based on the number of points allocated to the project, one of four
levels of certification can be awarded: Certified, Silver, Gold or Platinum.
The original LEED rating system was designed for new, commercial construction
(LEED-NC). Since 2000, five additional LEED ratings systems have been created applying to
commercial interiors for tenant improvements (LEED-CI), the operation and maintenance of
existing buildings (LEED-EB), the core and shell of buildings (LEED-CS) and single-family and
multi-resident home construction (LEED for Homes) (Yudelson Associates, 2007). In 2000, 41
projects registered with LEED in the U.S.; in 2007 there were over 5,000.