Document Type

Article

Journal/Book Title/Conference

Ecological Economics

Volume

47

Issue

1900-01-02

Publication Date

2003

First Page

197

Last Page

212

Abstract

This paper investigates the effectiveness of reputation in inducing a polluting firm to self-regulate its emissions when consumers have imperfect information. In particular, we ask to what extent must consumers reward and punish the firm before it chooses self-regulation as its dominant strategy? We find that if payoffs in the stage game are such that both the consumer and the polluting firm have beliefs that are consistent with each others’ behaviors, then the firm has a positive probability of playing clean in each period of a finite game. Further, we find that a weak reward/punishment scheme may have an adverse effect on the environment, and that there are both environmental and welfare gains associated with strengthening the scheme.

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