Voluntary Programs: A Club Theory Perspective by Matthew Potoski, Aseem Prakash

By Matthew Potoski, Aseem Prakash

A conceptual framework and empirical case stories of the coverage impact of voluntary courses backed by means of undefined, govt, and nongovernmental firms.

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Voluntary Programs: A Club Theory Perspective

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Why might this happen? Suppose some firms decide to reduce pollution. As the word spreads, this generates a warm glow (see chapter 4) about the environmental consciousness of firms in general (or perhaps in an industry, if these firms were in a single industry). Firms have the incentive to free ride because all firms would bask in the warmth of this glow. The subset of firms that incurred costs to create the warm glow in the first place is essentially subsidizing the goodwill that all firms receive. A firm might be willing to produce more social externalities if the benefits of its actions were not shared among all firms but instead went only to the one firm.

It is therefore important for voluntary clubs to establish monitoring and enforcement mechanisms that reduce information asymmetries, and signal to club members that their adherence to club obligations is under scrutiny and their shirking will be sanctioned. Creating monitoring mechanisms increases the costs of governing a voluntary program. Club sponsors need to make careful assessment of the marginal benefits of increasing monitoring stringency. We identify three components to effective and credible monitoring and enforcement systems: third-party monitoring, public disclosure of audit information, A Club Theory Approach to Voluntary Programs 27 and sanctioning by program sponsors.

To produce effective voluntary collective action, the participating actors need to share the costs and benefits of their actions. By and large, collective action is likely to fail if some actors want to reap the benefits but not share the costs. Indeed, Olson’s (1965) insight was that collective action is undermined by free-riding actors who seek to enjoy the benefits of collective action without paying for them. Thus, for successful voluntary collective action, rule systems need to curb free riding.

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