1. Strategic Management and the Environment Fall Term, 2007, MW, 3:30-5:20 Bren Hall 1414 Office Hours 1-2, MW, but stop by any time Gary D. Libecap 4412 Bren Hall 893-8611 glibecap@bren.ucsb.edu glibecap@bren.ucsb.edu Course objective: To understand the environmental challenges facing firms, the constituencies and constraints they face in responding to them, the conditions under which firms will take action voluntarily, and the impact/politics of government regulation. This understanding will allow students to be leaders within firms or in working with firms in achieving environmental and natural resource objectives.

2. Strategic Management and the Environment What we will do in the course: –Analyze the firm and the forces that affect its behavior— constituencies and constraints. Firms and market conditions are heterogeneous. Not all are the same. Not all will react to environmental and resource issues similarly. –Review the problem of externality. Most environmental and resource problems involve externalities—non-internalized costs or in some cases, benefits. Private costs and benefits ≠ social costs and benefits. Too much or too little of a bad (pollution) or a good (amenities). Property rights issue. Why? How to have the firm appropriate more of the benefits or costs? –Examine the social responsibility of business. There are always tradeoffs, costs. How much can a firm do regarding the environment and meet its other objectives and constraints? Ways of influencing firms: changes in demand, changes in cost, changes in property rights.

3. Strategic Management and the Environment –Examine incentives to adopt new products and processes that have environmental/resource benefits. What markets? Core competencies? Competitive advantage? Costs? Changes in demand. How to respond to regulation. –Examine competitive strategies. If a firm is considering new products, processes, technologies, what factors will it consider? Opportunity—size of the benefit to society and to the firm? For whom—what market segment, how does it benefit them, sensitivity to cost?

4. Strategic Management and the Environment Opportunity—size of the benefit to society and to the firm? For whom—what market segment, how does it benefit them, sensitivity to cost? What are expected revenues and costs, rates of return? Uncertainty regarding the technology? Regarding market response? Regarding competitor response? Regarding regulatory response? Competitive Advantage—ability to earn more than a normal return. For how long? Intellectual property issues? Response of competitors—duplication? Response of consumers—price sensitivity, segmentation, substitutes and compliments?

5. Strategic Management and the Environment –Examine regulation and tax policies. How will the firm respond? How is public policy molded? Heterogeneous firms. –Examine private solutions to public problems. Property rights and trading. Coasian bargaining. Incentive compatible. Market-based solutions. Examine why they are growing in popularity.

6. Strategic Management and the Environment The firm and its constituencies. –Firms are the dominant organizational form for the production of goods and services; dominant employers; dominant consumer of resources. They are not necessarily the greatest polluters. Governments can be. Firms in competitive situations are often more responsive to social pressures. –Nevertheless, the actions of firms can have important environmental and resource consequences. –Tradeoffs. Firms produce the goods and services that society demands; are the primary sources of income—wages, stock and bond earnings, dividends. Firms must be responsive to employee demands, to financial markets, to input suppliers, consumers, competitors. There is increasing international competition for customers, for labor, inputs, funds.

7. Strategic Management and the Environment The problem of externalities and public goods. What are they and why do firms have difficulty in responding to them? What does it mean when we say that private costs < social costs or that private benefits < social benefits? What are the implications for production and firm behavior? Externalities and public goods are examples of the tragedy of the commons. The Tragedy of the Commons. –What is the tragedy? Why are individuals (organizations) locked into an inevitable tragedy? What is missing to change behavior? –How can it be averted? What does Hardin suggest? –How does this apply to firms and the environment? How might a firm respond to externalities? –Voluntarily—internalize some of the externality –Regulation/tax policies

8. Strategic Management and the Environment Wednesday Oct 3—discuss externalities, drivers of environmental action