In the early 1990s, the U.S. Environmental Protection Agency (EPA) began an alternative approach to environmental regulation based on voluntary pollution prevention programs. Currently, there are over a dozen voluntary environmental programs and thousands of participating firms. These programs cover pollutants subject to regulations with different degrees of stringency and differ widely in their specific goals and requirements.

Why do firms participate in the EPA's voluntary environmental programs? Possible reasons include:

• Appealing to consumers who demand "green" products;

• Preempting government regulations;

• Seeking regulatory relief from the agency;

• And gaining a competitive advantage over competitors.

Focusing on manufacturing firms in the Standard & Poor 500, researchers exemined participants in three voluntary EPA programs.

• The researchers found that publicity is an important component of participation.

• The worse the environmental track record of the firm, the more likely the firm is to participate, but only in programs directly related to highly regulated pollutants.

• Firms that scrutinize their environmental performance more carefully are wary of newer programs with uncertain benefits.

• Firms appear to value the information/technology transfer aspect of joining a program.

• Firms were 23 percent more likely to participate if they publish an environmental report.

Using a "stick-and-carrot" approach, the EPA has increased firm responsiveness to its voluntary programs, which seemingly confirms the hypothesis that firms are more likely to join a voluntary program when the regulatory alternatives are more stringent.

Source: Julio Videras and Anna Alberini, "The Appeal of Voluntary Environmental Programs: Which Firms Participate and Why?" Contemporary Economic Policy, October 2000.