Impact of 33/50 Program on Toxic Releases & Economic Performance of US Chemical Firms, Slides of Environmental Economics

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Impact on Toxic Releases

and Economic Performance of Firms

Objective

• This paper examines:

• the motivations for firms participation in the

voluntary 33/50 Program

• the program’s impact on the toxic releases

and economic performance of firms in theU.S. chemical industry

Conceptual Framework

•^

The program outcome model is specified as:

-^

Y

it^

- i

th firm’s pollution level at time

t

•^

X

it^

• a vector of observed exogenous firm-specific variables, such as its production technology, levelof output produced, and input and output prices -^

D

it^

• program participation decision (1=Yes, 0=No)

•^

εit

• random error term

Conceptual Framework

•^

Participation decision of a firm at time

t

depends

on the net benefits from participation

D*

it

•^

X

2it

• vector of exogenous variables for the

i

th firm

Conceptual Framework: Motivations for

Participation in the 33/50 Program

•^

Arora and Cason (1995)– participation is motivated by size, financial

characteristics, and desire for public recognition

•^

This paper extends the above findings byhypothesizing that the incentives for participationarise from the following sources:– Program Features– Mandatory Environmental Regulations– Firm-Specific Characteristics

Conceptual Framework: Motivations for

Participation in the 33/50 Program

•^

Program Features– Participation in the program provides certain direct

benefits to firms

• Their efforts to protect the environment are given public

recognition through press releases, newsletters, andawards.

• This is expected to improve customer goodwill for

participating firms

Conceptual Framework: Impact of the 33/50Program on a Firm’s Economic Performance

-^

Large part of the cost of the participation isincurred immediately and many of the benefits willonly be realized in the long-run

-^

Thus, current and long-run economic performancemust be measured separately

-^

Current Economics performance is measured byROI and EV/S

Data and Analysis

•^

The study utilizes firm-level data onenvironmental and financial variables of publiclytraded firms with SIC code 28 (chemicalindustry)

-^

Probit model with pooled time series and cross-sectional data was used to investigate thedeterminants of participation decision of firmsover the period 1991-

-^

246 pooled observations

Data and Analysis

•^

Mandatory regulations explanatory variables:–

Number of Superfund Sites

• to proxy the

impact of the Superfund Act

•^

Program features explanatory variables:–

Final Good

• dummy var. for firms selling

final products

Results: Motivations for Participation in the 33/

Program

•^

Two alternative specifications for analyzing thefactors motivating participation in the 33/50Program

-^

Model I includes 33/50 Releases, while model IIincludes the First Invitation Group as anexplanatory variable

Results: Motivations for Participation in the 33/

Program

•^

Both models show that the desire for publicrecognition and increased consumer goodwillprovide statistically significant incentives forfirms selling

final goods

to participate in the

program

-^

CMA

members are significantly more likely to

participate than nonmembers

-^

The negative sign of

age of assets

indicates

that firms with older assets are more likely toparticipate

Results: Motivations for Participation in the 33/

Program

-^

Firms with a high ratio of 33/50 releases to total toxicreleases are less likely to participate in the program,because these firms would find it more difficult tosubstitute other chemicals for 33/50 chemicals

-^

Model I shows that firms with larger 33r50 releases aresignificantly more likely to participate

-^

A firm’s inclusion in the first invitation group appears tobe a better indicator of its participation decision