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Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance Matthew Potoski Iowa State University & Aseem Prakash University of Washington.

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Presentation on theme: "Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance Matthew Potoski Iowa State University & Aseem Prakash University of Washington."— Presentation transcript:

1 Covenants with Weak Swords: ISO 14001 and Firms’ Environmental Performance Matthew Potoski Iowa State University & Aseem Prakash University of Washington

2 Research Question Do voluntary programs improve participants’ environmental performance? Specifically, do programs with weak monitoring and sanctioning mechanisms – weak swords – mitigate shirking and improve performance?

3 Big Picture Diminishing returns to command and control Controversy over the efficacy of voluntary environmental programs Empirical results provide mixed evidence on efficacy

4 Key Argument Voluntary programs effective if they mitigate shirking Shirking mitigated through -monitoring and sanctioning -Public disclosures -Sanctioning by program sponsors However, programs with monitoring only can mitigate shirking

5 ISO 14001 Launched in 1996 Geneva-based non-govt, non-profit organizational By the end of 2002 49,000 facilities in 118 countries had joined ISO 14001 EMS-based Third-party auditing

6 Previous research Responsible Care Ho: shirking mitigated due to institutional mimicry and normative pressures Ha: Shirking not mitigated because absence of monitoring Result: RC not effective

7 Our contribution Build on RC research, contrast ‘no sword’ with ‘weak sword’ ISO 14001 similar to RC because of their EMS focus Institutional pressures less likely to work in ISO 14001 vs. RC If ISO 14001 participants improve performance, third-party monitoring significantly contributed to it

8 Methods Treatment Effect model to control for endogeniety issues Stage 1: Estimate the probability of joining ISO 14001 Stage 2: Examine if joining ISO 14001 improved performance Variables: Facility, regulatory, neighborhood, and state policy contexts


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