An enduring problem for strategic management is the sustainability of policy initiatives. Institutional theory suggests that self-regulatory structures can become institutionalized in organizations that adopt them, generating both a real commitment to regulatory compliance and a set of practices to support this commitment. Nevertheless, very often organizations choose to symbolically establish self-regulatory structures, which may lead these organizations to decouple regulatory compliance from practices or operate in ways that distort the normative ideals that underlie the law.
Policy-makers have two broad types of instruments available for changing institutional structures. They can either use traditional regulatory approaches that set specific standards, or they can use economic incentive or market-based policies that rely on market forces to correct organizational behaviour. Literature tells us little about whether the choice of policy instruments facilitates or undermines organizations’ commitment to legal norms, and consequently the promotion of self-regulation. Despite the fact that an effort has been made to shed light on the effects of threats and surveillance on the institutionalization of self-regulatory structures (Short & Toffel, 2010), the effect of less punitive or even motivating tools that would highlight the organizational gains stemming from the application of such measures, has not been examined by literature.
The study will explore the impact of market-based instruments and participation in voluntary programmes on self-regulatory structures. The aim is to fill the gap in the existing literature and reach an understanding of the effectiveness of the various policy tools used for environmental protection purposes. For the purposes of the current research, we will use data that relate to the implementation of the United States Clean Air Act (CAA) and specifically Environmental Protection Agency’s (EPA) programmes that are based on marketable permits, subsidies and voluntary programmes.
In their effort to investigate how different tools in the enforcement portfolio may affect the mobilization of internal compliance structures and promote self-regulation, Short & Toffel (2010) focused their research on the impact of threats and surveillance. They indicate that the nature and amount of regulatory pressure can influence the likelihood that regulated organizations will follow through on commitments to self-regulate. Short & Toffel (2010) suggest that facilities not facing regulatory threats that disclosed regulatory violations and committed to self-regulate exhibited improved regulatory outcomes. In contrast, facilities that disclosed while facing regulatory threats did not improve their regulatory outcomes compared with their matched controls, suggesting that bald displays of coercive power by the state can undermine more normatively based motivations to self-regulate. Unlike sanctions and threats, the researchers demonstrate that surveillance does not appear to dampen normative motivations and thus can be an effective tool not only for deterring harmful behavior but also for enhancing the self-regulatory performance of regulated organizations.
The abovementioned findings are in line with the regulatory compliance literature which has long recognized that punitive enforcement can compromise goodwill and actor’s intrinsic and reputational motivations to comply with the law (Ayres & Braithwaite, 1992). It is commonly accepted therefore that even though self-regulation cannot be separated from the extrinsic motivations that prompt and support it, its efﬁcacy depends heavily on the intrinsic and reputational motivations of the firms that adopt it.
In this context, Durand, Hawn and Ioannou (2017) develop a conceptual understanding of when and how organizations respond to normative pressures. More precisely, they examine two main factors underlying the willingness and ability of organizations to respond to an issue: (1) issue salience, and (2) the cost-benefit analysis of resource mobilization. The researchers indicate that factors that decrease the net benefit of inaction (either by decreasing the perceived gain or increasing the perceived cost of not taking action) increase the likelihood of symbolic organizational responses to the issue. On the contrary, evidence indicate that factors that increase the net benefit of action (either by increasing the perceived gains or by reducing the perceived costs of resource mobilization) increase the likelihood of substantive organizational responses to the issue.
Combining the abovementioned two articles therefore, we could consider threats and surveillance as factors that decrease the net benefit of inaction, and thus, increase the likelihood of symbolic organizational response. Both enforcement tools are merely ways to influence the regulated organization’s expected cost, and both are coercive in the sense that they seek to induce particular behaviors, by making undesirable behaviour more costly . What is worth identifying though is that Short & Toffel (2010) have only partially examined their initial position which supports that different institutional conditions can influence organizations’ ability to implement those commitments. They limit their investigation in factors that in way or another, posit negative pressure on the target organizations and aim to decrease the net benefit of inaction, leaving untapped the impact of non-punitive practices on self-regulation, whose benefits have been underlined by the aforementioned literature and aim to increase the net benefit of action.
As regards environmental concerns, we should keep in mind that firms will improve their environmental performance through market incentives, as long as it is financially valuable for them to do so, and this generally happens at a point where marginal abatement costs are equated across all regulated firms. Market-based approaches thus create an incentive for the private sector to incorporate pollution abatement into production or consumption decisions and to innovate in such a way as to continually search for the least costly method of abatement. In this context, it is considered appropriate that the impact of market incentives on regulatory structures are examined, which as explained above can have positive impact on the Net Benefit of action. Examples of market-based approaches include marketable permit systems, emission taxes, fees, and charges and subsidies.
Furthermore, as indicated by Benabou & Tirole (2006), meaningful self-regulation, like other forms of cooperative behavior, is driven by a complex mix of internal, external, and reputational motivations. Numerous studies on motivating cooperation in organizations have demonstrated that intrinsic motivations are fragile and can be crowded out by attempts to manipulate behavior extrinsically using sanctions or rewards (Short & Toffel, 2010). In addition to the market-based approaches thus, we could examine whether voluntary self-regulation can be seen as a factor that enhances the net benefit of action, and thus has a positive impact on self-regulatory structures.
In order to investigate the impact of factors that increase the net benefit of action (market-based and voluntary instruments) on the effectiveness of organizational self-regulation, we will examine the improvement of the environmental protection outcomes, that is, the difference in emissions reduction stemming from the participating facilities.
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