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Contexts, timing, and corporate voluntary environmental behavior

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Contexts, timing, and corporate voluntary environmental behavior a new look at voluntary participation in the Environmental Protection Agency's Green Lights Program
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Moon, Seong-gin
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Corporations -- Environmental aspects -- United States ( lcsh )
Environmental policy -- United States ( lcsh )
Industrial policy -- United States ( lcsh )
Corporations -- Environmental aspects ( fast )
Environmental policy ( fast )
Industrial policy ( fast )
United States ( fast )
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Includes bibliographical references (leaves 138-157).
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School of Public Affairs
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by Seong-gin Moon.

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r
CONTEXTS, TIMING, AND CORPORATE VOLUNTARY ENVIRONMENTAL
BEHAVIOR: A NEW LOOK AT VOLUNTARY PARTICIPATION IN THE
ENVIRONMENTAL PROTECTION AGENCYS GREEN LIGHTS PROGRAM
by
Seong-gin Moon
B.A., Kyung-hee University, 1995
M.P.A & M.S.E.S, Indiana University, 2000
A thesis submitted to the
University of Colorado at Denver
in partial fulfillment
of the requirements for the degree of
Doctor of Philosophy
Public Affairs
2005


2005 by Seong-gin Moon
All rights reserved.


i
I
f
This thesis for the Doctor of Philosophy
degree by
Seong-gin Moon
has been approved
by
Linda deLeon
Brian Duncan
Date


Moon, Seong-gin (Ph.D., Public Affairs)
Contexts, Timing, and Corporate Voluntary Environmental Behavior: A New Look
at Voluntary Participation in the Environmental Protection Agencys Green Lights
Program
Thesis directed by Professor Peter deLeon
ABSTRACT
Recent academic literature has suggested two different perspectives that explain
participation in voluntary environmental programs. On one hand, market advantage
motivation perspectives view voluntary participation as a strategic tool by which
firms promote their environmental images and obtain competitive advantage in
markets. On the other hand, institutional legitimacy motivation perspectives regard
voluntary participation as a channel through which to gain institutional legitimacy
and thus weaken regulatory standards that are either existing or forthcoming. This
dissertation examines both perspectives of corporate voluntary participation by
investigating the EPA-sponsored Green Lights (GL) voluntary program between
1991 and 2000. It examines conditions and contexts that drive GL participation and
relate them to particular motivations. In addition, it addresses the timing decision
underlying GL voluntary participation (i.e., early, late) and its systematic influence
on voluntary motivations. A probit regression analysis provided partial evidentiary
support that institutional legitimacy motivation perspectives are not as persuasive as
the market advantage motivation perspectives in terms of explaining participation in
IV


the GL program. Larger firms and firms with proximate consumer relations, who are
more likely to participate in the GL program to improve their green image and
achieve competitive market advantages, were highly supported, while a firm in an
industry with a poor environmental performance track record, whose motivation for
the GL participation is to promote environmental legitimacy of the industry as a
whole and prevent stringent environmental regulations, was weakly supported. In
terms of different time dimensions of GL participation, the multinomial logit
regression analysis partially supported that market advantage motivations that drive
firms to participate in the GL program at the early diffusion stages lent their
influences to the institutional legitimacy motivations at the late diffusion stages.
Firms with proximate relations with final consumers are more likely to be early
participants in the GL program, while firms in an industry with a poor
environmental track record are more likely to be late participants in the GL program.
Larger firms, however, are equally likely to become either early or late GL
participants.
This abstract accurately represents the content of the candidates thesis. I
recommend its publication.
Signed
Peter deLeon
v


DEDICATION
I dedicate this dissertation to my parents, wife, and my two sons. While I was
writing this, they always stood by me and provided me with their great love,
encouragement, and comfort.
I am really thankful to my parents who have supported me a great deal
financially and emotionally. My personal thanks go to my wife, Sang-ri Cho, for her
constant encouragement, care, and prayers. She has been working hard to be not only
a great wife but also a great mother of two sons. Without her unconditional love and
caring, it would not have been possible for me to complete this project.
Best of all, I have been blessed to have two sons, Suk-bin Moon and Suk-yon
Moon (now two and three years old respectively), during my doctoral study. They
have been a great source of enjoyment and love. Their presence makes my life
infinitely happier and more enjoyable.


ACKNOWLEDGEMENTS
This dissertation could not have been completed without the help of my
dissertation committee members, many other people, and support from the Graduate
School of Public Affairs (GSPA).
My deepest gratitude goes to my adviser and dissertation chair, Peter deLeon.
Peter has been a great source of encouragement, guidance, and support throughout the
process of dissertation writing. He has devoted an incredible amount of time and
energy to this dissertation. His suggestions and comments have become an important
source of intellectual development in this dissertation. He has read this dissertation
manuscript multiple times and been prompt in giving constructive feedback. Most of
all, his constant care and diligent guidance made it possible for me to complete this
undertaking.
Linda deLeon has been very supportive of my research. Even with her busy
schedule embracing the tasks of both professor and associate dean, she has provided
me with valuable suggestions, ideas, and editorial comments after carefully reading
my dissertation draft.
George Busenberg has been a great supporter of this dissertation, willing to share
with me his own experience and knowledge regarding the endeavor. His advice about
collecting, recording, and organizing information was particularly useful.


Jorge Rivera has been my friend and guide. It was Jorge who triggered my
interest in business and environmental regulations. Even after his relocation to
George Washington University, he has diligently provided his comments on my
dissertation throughout the process.
Brian Duncan has helped me considerably in constructing econometric models.
He has patiently answered the questions I had about the econometric models.
I have been blessed with my graduate friends at the GSPA, Danielle Vogenbeck
and Jo Amey. Danielle has been a source of great encouragement. Since becoming
my neighbor in cubicle office space, she has provided me with her caring and
friendship. I am glad that we both defended our dissertations at about the same time.
Jo voluntarily took note of committee members comments during my dissertation
defense and threw a great party for both Danielle and me.
I wish to thank my other colleagues who have helped and supported me during
my study in GSPA. These include: Jae Moon, Chul-yong Roh, Michael Kuo, and
Yong-Joong Kim.
I also wish to thank Phil Shane, an Accounting Professor at the University of
Colorado, Boulder, for allowing me access to the WRDN database in acquiring the
financial data of firms.


Finally, I thank GSPA, University of Colorado at Denver and Health Science
Center, for support by furnishing me valuable office space equipped with a personal
computer.


CONTENTS
Figures...........................................................xii
Tables...........................................................xiii
CHAPTER
1. INTRODUCTION.........................................................1
Background..........................................................1
Purpose of the Dissertation.........................................9
Green Lights Voluntary Environmental Program.......................11
Dissertation Overview..............................................13
2. LITERATURE REVIEW...................................................15
Environmental Regulatory Approach..................................15
Theoretical Perspectives on
Environmental Regulatory Approach..............................16
Historical Perspectives on
Environmental Regulatory Approach..............................22
Discussion: Environmental Regulatory Approach......................35
Voluntary Environmental Programs (VEPs)............................38
Overview.......................................................38
Corporate Participation in VEPs....................................44
Theoretical Perspective on
Corporate Voluntary Participation..............................44
Summary and Discussion:
Voluntary Programs and Voluntary Participation.....................51
3. THEORETICAL MODELS..................................................53
Introduction.......................................................53
Resource-based Theory..............................................56
Resource-based Theory and Green Lights (GL) Participation......60
Institutional Theory...............................................66
Institutional Theory and GL Participation......................69
Innovation Diffusion Theory........................................75
Innovation Diffusion Theory and GL Participation...............79
4. RESEARCH DESIGN.....................................................83
Introduction.......................................................83
Overview of Research Hypotheses....................................84
Sample.............................................................86
Variable Measures..................................................89
Dependent Variables............................................89
x


Independent Variables............................................90
Control Variables................................................94
Empirical Models......................................................94
Probit Regression Model (PRM)....................................95
Multinomial Logit Regression Model (MLRM)........................97
5. EMPIRICAL RESULTS AND ANALYSIS........................................100
Introduction.........................................................100
Descriptive Statistics...............................................101
GL Participation................................................101
Factors Influencing GL Participation............................102
Probit Regression Model (PRM) of GL Participation....................106
Results and Marginal Effect.....................................106
Factors Influencing GL Participation............................108
Multinomial Logit Regression Model (MLRM) of
Timing of GL Participation...........................................114
Results and Marginal Effect.....................................114
Early versus Late GL Participation..............................115
6. DISCUSSION AND CONCLUSION.............................................121
Introduction.........................................................121
Research Findings and Conclusions....................................122
Contexts and GL Participation...................................122
Timing of GL Participation......................................128
Implications.........................................................129
Theoretical Implications........................................129
Practical Implications..........................................130
Limitations..........................................................133
Future Study.........................................................135
REFERENCES...............................................................138


FIGURES
Figure 5.1 Overview of Hypothesis Tests for GL Participation (1991-2000) 113
Figure 5.2 Overview of Hypothesis Tests for Timing of GL Participation.........120


TABLES
Table 2.1 Voluntary Environmental Program Categories in the United States.... 43
Table 5.1 Frequency Distribution of GL Participation............................101
Table 5.2 Frequency Distribution of GL Participation Timing.....................102
Table 5.3 Frequency Distribution of Final (Consumer) Products...................102
Table 5.4 Frequency Distribution of Industrial Sectors..........................102
Table 5.5 Descriptive Statistics................................................103
Table 5.6 Correlation Matrix for GL Participation...............................105
Table 5.7 Probit Model of GL Participation between 1991 and 2000................107
Table 5-8. Multinomial Model of Early GL Participation..........................118
Table 5-8. Multinomial Model of Late GL Participation...........................119


CHAPTER 1
INTRODUCTION
Background
U.S. environmental policy has had a turbulent history since environmental
problems first drew national attention and prompted the environmental movement,
symbolized dramatically by the First Earth Day in 1970 (Kraft and Vig, 2003). It has
consistently been reevaluated and shifted its design and approach to environmental
protection, as a function of changing views regarding regulatory and environmental
practices and scientific knowledge. The traditional regulatory approach, in which the
federal government had the prominent role in controlling industrial pollution
emissions (in the early 1970s), was reconsidered, and the federal government
surrendered part of its role to alternative regulatory methods under the banner of
environmental regulatory reforms. Various pollution-control protocols have been
experimented with, including market-based mechanisms (e.g., emission trading),
information-based mechanisms (Toxic Release Inventory), and voluntary
environmental programs (e.g., 33/50, Green Lights, Climate Challenge). Instead of
mandating and enforcing environmental standards and performance, these alternative
environmental protocols have provided industries with a variety of incentives and
1


discretion to achieve environmental goals. As alternatives to the traditional
command and control regulatory regimes, they were designed to complement and
even replace traditional pollution-control mechanisms that were often considered
complex, costly, inflexible, and (most seriously) not particularly effective.
Firms have dramatically transformed their own environmental strategies with the
changes in the landscape of environmental policy and other external factors (e.g.,
community environmentalism, interest group activism, green consumerism, and
shareholder pressure). Moving away from a defensive and passive response to
environmental regulations, an increasing number of firms (e.g., 3M, Dupont, Baxter
International, and BP-Amoco) have adopted a cooperative and proactive stance on
environmental protection. Environmental protection, formerly viewed as a regulatory
responsibility, came to be recognized by firms as a strategic means of enhancing their
public image (Hoffman, 2001). Many firms voluntarily chose to allocate financial and
other resources to undertake environmental initiatives that went beyond strict
regulatory requirements (Fisher and Schot, 1993; Smart, 1992). These voluntary
environmental initiatives (VEI) have been undertaken through voluntary
environmental programs (VEP), either government-sponsored (e.g., 33/50, Green
Lights, Waste Wise, Climate Challenge) or non-govemment-sponsored programs
(e.g., Chemical Manufacturing Associations [CMA] Responsible Care, American
Forest and Paper Associations [AFPA] Sustainable Forestry Initiative, International
2


Standards Organizations [ISO] 9000 and 14000 series) (more details found in the
voluntary environmental programs section in chapter 2).
These overlapping trends of government regulatory reform movements and
corporate proactive environmental strategies overshadowed a prevailing argument
that environmental protection is a public good, in which self-interested individuals
and firms are believed to lack the necessary incentives to allocate and consume the
goods in a socially efficient manner (Hardin, 1968; Ostrom, 1990), and consequently
require government intervention (Baumol and Oates, 1988; Weimer and Vining,
1998). They rendered questionable the traditional regulatory roles of government that
were central in forcing firms to comply with regulatory requirements, that is, to meet
mandated environmental standards. Strong government intervention, once recognized
as reasonable and crucial to correct over-consumption of environmental resources,
has lost its authority and appeal, i.e., as legitimate, when aggravated environmental
problems and conditions challenged public health and ecological systems. This
realization required the government to either update its regulatory control or, more
likely, to reformulate its regulatory role.
Paralleling the dramatic change in government environmental policy and corporate
environmental actions, traditional regulatory policy which relies on a command-and-
control strategy for pollution control (more detail later in this chapter), has
increasingly been under intellectual pressure for reform. There have been two major
criticisms. The first criticism is related to rising regulatory costs afflicting both the
3


public and the private sectors. Rosenbaum (2000) and Rondinelli and Berry (2000)
illustrate the financial problem:
The regulated U.S economic sectors currently spend altogether a
relatively modest 2.8 percent of all capital outlays for pollution
abatement, but the compliance costs for individual industries and
factories has often risen steeply over the last decade. The costs of
administering many environmental programs also has been climbing
relentlessly throughout the 1990s (Rosenbaum, 2000: 175).
Individuals, businesses, and governments spend more than $121
billion annually on pollution abatement and control. The total cost of
complying with environmental laws since the 1970s now exceeds $1
trillion (Rondinelli and Berry, 2000: 170).
The tendency of precipitously growing regulatory costs is largely related to the
existing regulatory framework, that is, simultaneously prescriptive and inflexible in
nature, in two significant ways. First, the prescriptive regulatory approach that
imposes mandated goals and methods of pollution control requires federal and state
regulatory agencies to spend additional resources, including financial, to develop,
implement, and enforce these regulations. The regulatory approach that works
through monitoring and enforcement mechanisms becomes more expensive, as
environmental problems become more diverse in terms of scope (air, land and water),
category (toxic substances and hazardous wastes), and complexity (interrelated nature
of pollution problems). These new environmental problems threaten to add new
environmental regulations and rules that demand even more administrative tasks and
requirements to be then evaluated for oversight and enforcement. By the end of the
4


th
20 century, the number of environmental regulations had increased more than five
times since the 1970s (Rondinelli and Berry, 2000).
The second way in which the traditional regulatory framework increases costs
flows from the fact that its one-size-fits-all approach breeds inflexibility in terms of
complying with regulations. To reach defined goals, pollution standards and
pollution-control technology are determined by geographic regions and particular
industries, not by specific circumstances of individual firms. This regulatory
inflexibility is problematic because it arguably imposes unnecessary economic costs
on selected firms and industries. Firms and industries could avoid undesirable and
inflexible economic burdens if they were permitted to be more adaptive, and allowed
to choose whatever method they considered most efficient in accomplishing the
specific environmental goal. In general, this one-size-fit-all approach forces firms to
use their resources to meet regulatory requirements and administrative procedures
(e.g., the permit process), rather than focusing on improving environmental quality.
The second criticism of the traditional regulatory mechanisms is that they
discourage the proactive environmental initiatives by which firms manage their
environmental impacts in ways that reduce their costs, increase their efficiency, lower
their liabilities, and enhance their competitiveness while reducing pollution,
conserving resources, and eliminating waste (Rondinelli and Berry, 2000: 168).
These traditional regulatory measures fail to provide adequate incentives to firms for
undertaking innovative environmental actions beyond mandated regulatory standards
5


and schemes. The traditional mechanisms that dominated U.S. environmental policy
for years can, this critique holds, actually harm the growing trend of proactive
environmental management practices to achieve improvement in environmental
performance. Some have argued that the gap between public policy and corporate
environmental management practices is widening and threatens the potential for
meaningful progress (Rondinelli and Berry, 2000).
Overall, a National Academy of Public Administration (NAPA) study (1995) has
argued that traditional pollution-control methods have been counterproductive, in that
the marginal costs of regulatory compliance exceed the marginal benefits in
environmental quality. Ultimately, they undermine corporate market competitiveness
in the environmentally sensitive sectors (Jaffe, et al., 1995).
Under the increasing pressure for regulatory reform, the VEP was introduced in
1990 as an alternative to traditional pollution-control methods and is currently
gaining high currency. Voluntary programs haven proliferated tremendously in the
United States. Since 1990, more than 42 VEPs have been administered by both
government agencies (e.g., Environmental Protection Agency [EPA], Department of
Energy [DOE]) and non-governmental organizations, including industrial trade
organizations (e.g., CMA, AFP A, National Paints and Coating Association, American
Textile Manufacturers Institute), and independent third-party organizations (e.g.,
Environmental Defense Fund, ISO) (Mazurek, 2002). In combination, the number of
participants in VEPs has been rapidly growing. In 2000, there were more than 13,000
i
6


participants in EPAs VEPs alone. EPAs Green Lights Program (1991) invited more
than 2300 participants (including both the public and private sectors).
VEPs have received great attention from both government agencies and non-
governmental organizations, due to their apparent win-win approach to
environmental protection; that is, they provide the means to simultaneously address a
firms environmental performance and still increase firms competitiveness (Norberg-
Bohm, 1999). In contrast to mandatory regulation that posits a conflictual relationship
between government and firms, the VEP is designed to accommodate a collaborative
relationship among all relevant parties, including government agencies,
environmental groups, and businesses (Press and Mazmanian, 2003). The roles of
firms and government agencies gained particular attention. Firms in VEPs are
exercising greater discretion in terms of determining details, concerning both
implementation methods and commitment to environmental goals. Government
agencies can function as supporters or guides rather than regulators to encourage
firms to improve environmental performance.
The potential roles of the VEP have been particularly pronounced in the U.S.
policy of global climate change. VEPs were credited as a feasible alternative when
there is no political consensus on the means to reduce aggregate greenhouse gases
(Brunner and Klein, 1999). This is because they can harvest small-scale experiences
and models of successes fundamental to the continuous reduction of emissions.
Successful voluntary climate actions through VEPs (such as EPAs Green Lights,
j
i
7


DOEs Climate Challenge, EPA-DOE-industry sponsored Climate Wise), which
mitigate adverse climate change while supporting economic competitiveness, can
induce other organizations voluntary commitments.
Between 1992 and 2000, the Clinton Administration strongly advocated VEPs as
part of the broader scheme of reinventing environmental protection (Rosenbaum,
2000). A wide range of VEPs was initiated under Clinton, some of which were
adopted to promote the Climate Change Action Plan (1993), which pledged the
voluntary commitment of greenhouse-gas emission reduction to 1990 levels by the
year 2000 under Article 4(2) of the UN framework convention on Climate Change
(Brunner and Klein, 1999). If they are effective, VEPs can help attain the goal of
greenhouse-gas reduction while improving economic growth and better equipping
firms to compete in global markets (Clinton and Gore, 1993). President George W.
Bush also has promoted VEPs as the most effective means to greenhouse-gas
emission reduction, albeit with a different political motivation from President
Clintons. President Bush has adopted VEPs to reduce the role of federal regulatory
agencies rather than strengthen them; he also has shifted much of the role of the
agencies to the states in partnering and collaborating with industry to promote
voluntary environmental action (Press and Mazmanian, 2003). Under the slogan,
voluntarily controlling emissions can make mandatory reduction unnecessary, the
Bush Administration has engaged in aggressive efforts to secure corporate voluntary
pledges to curb emissions (Revkin, 2003: A17).
8


Purpose of thie Dissertation
As U.S. governments have initiated more VEPs, and as more and more firms
have participated in them, it has become important to understand what factors and
considerations motivate firms to subscribe to voluntary participation. Understanding
firms motivations is critical in that it helps uncover the mechanisms by which they
decide to participate in a VEP, while assisting researchers and policymakers in
assessing how specific industries and firms respond to voluntary measures.
Current research provides contradictory views of corporate motivations for VEPs.
Proponents of VEPs find that firms engage in a VEP to obtain eco-efficiency
(simultaneously reducing environmental impact and manufacturing costs), earn a
green reputation and thereby capture the green market, and attract
environmentally conscious investors (Arora and Cason, 1996; Lyon and Maxwell,
1999; Porter and van de Linde, 1995a, Rivera, 2002). These findings are clearly
consistent with the goals of such programs to accomplish the win-win solution to
environmental protection. VEPs are policy instruments to promote environmental
protection and competitive market advantages. Conversely, critics suggest that firms
participation in VEPs is driven not by the improvement of environmental
performance but by a need to disguise their poor environmental performance, and
thus avoid regulatory monitoring and oversight (Arora and Cason, 1996; King and
Lenox, 2000; Lyon and Maxwell, 1999; Welch et al., 2000). These latter research
findings conjure cynical views of VEPs, suggesting that they programs can breed
9


opportunistic behavior (King and Lenox, 2000) and are symbolically producing
positive environmental images, or what is derisively called green washing
(Hoffman, 2001).
Although many researchers have identified motivations for VEP participation,
they lack research rigor in three areas: First, to understand the firms motivations,
most research fails to look into both their external and internal contexts. Some studies
pay attention to external contexts (King and Lenox, 2000; Maxwell et al., 2000;
Welch et al., 2000; Khanna and Damon, 1999; Arora and Cason; 1996) while others
focus on more internal contexts (Christmann, 2000; Sharma and Vredenburg, 1998;
Russo and Fout, 1997; Hart, 1995). This distinct form of research focus reduces the
analytic ability to evaluate the corporate voluntary motivations. Second, there has
been no systematic attempt to categorize motivations and their association with
particular contexts of firms. It is important to specify what motivations are
susceptible to what contexts. Finally, to date, no attention has been paid to the timing
(i.e., early versus late) of a firms participation in VEPs and its systematic influence
on VEP determinants and motivations. Distinct motivations of organizations in
different timing of adoption are well examined in diffusion literature (Rogers, 1983;
Abrahamson and Rosenkopf, 1993).
This dissertation proposes three research goals in terms of research questions.
First, it incorporates both internal and external contexts of firms to examine the
motivations for VEP participation. Second, it categorizes the motivations from
10


different theoretical perspectives and finds conditions and contexts that drive the
particular motivations. Finally, it identifies the motivations for VEP participation in
different time dimensions. To accomplish these goals, it carefully examines EPA-
sponsored Green Lights voluntary program (1991), which was later incorporated into
the Energy Star Building Program (1995). It investigates the participants between
1991 and 2000. More details about the Green Lights VEP are described in the next
section of this chapter.
Green Lights Voluntary Environmental Program
EPAs Green Lights (GL) program was initiated in 1991 as the flagship of its
Energy Star programs and continues in effect today. It focuses on pollution
prevention through energy-efficient lighting technology (e.g., electronic fluorescent
lighting ballasts, occupancy sensors, energy-efficient fluorescent bulbs). The GL
program seeks to prevent pollution emissions, particularly of greenhouse gases (e.g.,
carbon dioxide, methane, nitrous oxide). Considering that lighting accounts for a
significant portion of total electricity demand in the U.S. (20-25 percent overall and
80-90 percent for industry, stores, offices, and warehouses), advanced lighting
technology can reduce the demand for electricity and result in a great reduction in
utility emissions. In 1993, the EPA estimated savings of 202 million metric tons of
carbon dioxide; 1.3 million metric tons of sulfur dioxide; and 600,000 metric tons of
nitrogen oxides by initiating GL lighting upgrade projects.
11


The GL program encourages firms to install energy efficient technology in their
facilities. Firms that want to join must sign a Memorandum of Understanding (MOU)
with the EPA. As part of this agreement, they need to survey all of their facilities and
install new lighting systems that can realize energy efficiency without compromising
lighting quality, all within five years (EPA, 1993). The choice of lighting technology
is not prescribed but is left to the participants. In return, the EPA provides a wide
range of support to the participants throughout the lighting-upgrade process,
including technical assistance and information, possible financing sources, and public
marketing of the participants green initiatives. For example, the EPA helps
participants identify where lighting upgrades are needed and what options are by
using its state-of-the-art computer software package. In addition, technical assistance
takes place through monthly national-level lighting workshops and by publishing
product-information reports on the performance of lighting technology (EPA, 1993).
There are three categories of GL program participants: partners, allies and
endorsers (EPA, 1996). Partners include both the private and public organizations
(e.g., hospital, university, state and local governments) that upgrade lights in their
own facilities. Allies are energy and lighting-industry affiliates (both utilities and
purveyors of lighting equipment). They not only commit the same lighting upgrade as
partners but promote the program and energy efficient lights. Endorsers are
professional and trade organizations that encourage their members to adopt the
program. As of July 28, 2000, there are 1,589 partners, 486 allies and 299 endorsers.
12


The GL program was incorporated into the Energy Star Buildings (ESB) program
in March 1995. It became the first stage in a five-stage upgrade strategy to
accomplish comprehensive energy efficiency, focusing not only on lighting but on air
distribution and heating and cooling equipment in commercial facilities (EPA, 1996).
Dissertation Overview
The dissertation is divided into six chapters. Chapter One provides a brief
background on the emergence of a new policy instrument, VEP, its relevant issues
and questions, and discusses research objectives of this dissertation. Then, it provides
a substantive lens on EPAs Green Lights Voluntary Program. Chapter Two has two
principal foci. The first section explores the overall picture of how U.S.
environmental policy has evolved and adopted VEP to supplement traditional
regulatory methods. After discussing the theoretical underpinnings of its
environmental regulatory approach, this section reviews the historical evolution of the
regulatory approach. The second section offers an overview of the VEP, explores a
typology, and discusses previous research on corporate voluntary participation in
VEPs. Chapter Three highlights VEP participation from different theoretical
perspectives and identifies key factors that drive participation. It pays particular
attention to the internal and external contexts in which Green Lights participation
takes place, as well as to investigating its early and late-term implementation. Chapter
Four identifies formal research hypotheses derived from the previous chapters and
13


details the research methods necessary to address research questions and test
hypotheses. Accordingly, it describes a sample of the study, variable measures, and
statistical models. Chapter Five reports findings of the statistical analyses. Chapter
Six offers conclusions, theoretical insights and practical applications, and discusses
limitations, and issues for future study.
14


CHAPTER 2
LITERATURE REVIEW
Environmental Regulatory Approach
In the U.S., the visions of environmental regulations have long been debated in
both academic and political circles as there have been increasing debates about
regulatory reforms. In the academic arena, the debate has been centered at the
relationship between environmental protection and economic competitiveness. It has
largely been divided by lines demarcating academic disciplines. In the political arena,
the debate has been complicated with political, social, and economic factors such as
political activism, public opinion, political ideology, and socio-economic conditions.
Amid the continuous debates throughout history, environmental regulations have
shifted in focus and design.
This chapter provides an historical narrative of how an environmental regulatory
approach has evolved, after reviewing its theoretical perspectives. There are two
major parts to the discussion. First, different visions of environmental regulatory
approaches have been suggested by academics in terms of basic premises and
arguments about the regulatory approach. The second part adopts Kingdons (1995)
multiple stream theory to review how environmental regulatory approach has actually
15


been adopted since the 1970s. Particular attention is paid to how factors in political,
social, and economic contexts come into play to introduce changes in the
environmental regulatory approach.
Theoretical Perspectives on
Environmental Regulatory Approach
In the university setting, there have been two major paradigms suggested to
provide the direction of environmental regulatory reforms: win-lose and win-win
paradigms. The first paradigm adopts a win-lose paradigm of environmental
regulations (Jaffe et al., 1995; Palmer, et al., 1995; Xapapadeas and Zeeuw, 1999)
and is prevalent among mainstream environmental economists. It holds that
environmental regulations undermine a firms (or an industrys) economic
productivity and thus harm competitiveness. Based on this logic, it envisions minimal
roles for government in protecting the environment and leaves much of the
governments nominal responsibilities to the function of the competitive market
where firms respond only to their own economic (self-serving) interests in for
pollution abatement.
The second and more recent paradigm is a win-win paradigm of environmental
regulations (Porter, 1991; Porter and Linde, 1995a, 1995b), which is gaining attention
from policy-makers and researchers. This view, dominant among business strategists,
proposes that stringent environmental regulations can induce innovation, which leads
16


to enhanced economic productivity and competitiveness. The win-win approach
emphasizes an important role of governments, not only in correcting market failure to
conserve environmental resources but also in providing incentives and support for
innovations, different from the role traditionally defined.
The Win-lose Paradigm: Market Mechanisms as Reforms. Traditionally,
environmental regulation is considered to incur added economic costs to the firms,
which prevent (or at least hinder) economic productivity and thus undercut
competitiveness. Win-lose perspectives suggest that environmental regulations
impose significant costs, slow productivity growth, and thereby hinder the ability of
U.S. firms to compete in international markets (Jaffe et al., 1995: 133). The
perspective is consistent with rising concerns, from the early days of U.S.
environmental policy over regulatory costs, and their perceived negative effects on
economic development. It argues that the social benefits of regulation (e.g., health
benefits, water and air quality improvement) are outweighed by the costs. As a means
to reduce the costs and maximize the benefits, this perspective advocates markets
where firms are provided incentives to find the most efficient means for abating
environmental pollution. Under this framework, free markets are considered the most
efficient mechanisms through which to determine optimal levels of environmental
protection and adopt cost-efficient environmental technology (Hahn and Stavins,
1991; Jaffe et al, 1995; Xapadeas and Zeeuw, 1999). In this economic model of
regulation, government is designed to play only a minimal role in facilitating and
17


stimulating market processes through economic incentive measures (e.g., pollution
trade, pollution charges) (Weiner and Vining, 1998).
The perspective is founded upon the perfect-competitive-market model that
assumes utility maximizers with perfect information and calculation capacity,
frictionless transactions, and homogenous resources and technology (Barney and
Ouchi, 1986). Organizations are perfectly aware of profitable opportunities and
activities and make decisions that lead to maximizing economic interests.
Consequently, it is logical to assume that there is homogeneity of products and that
there are no superior economic performances. In such a world, it is natural to
conclude that government regulations are unnecessary and impose economic costs to
society.
Empirical studies have generally not found strong evidence of significant
negative effects of environmental regulation on economic competitiveness (Esty,
1996; Jaffe et al., 1995; Kalt, 1988). After reviewing more than a hundred academic
and government studies, Jaffe et al. (1995: 159) suggested that the truth regarding
the relationship between environmental protection and international competitiveness
lies in between the two extremes of the current debate [i.e., win-lose and win-win
perspectives]. The trade-off between environmental protection and competitiveness
was not as significant as conventional wisdom indicates (Xapapades and Zeeuw,
1999) because innovation driven by regulation could offset the costs of the regulation
18


(Porter and van der Linde, 1995b; Jaffe et al., 1995; Palmer et al., 1995; Xapapades
and Zeeuw, 1999).
Limitation of this perspective stems from its underlying assumption of the
perfect-competitive-market model that posits utility-maximizing behavior with
perfect information and does not result in superior resources or economic
performances. This model assumption prevents considering opportunities obtained
through response to stringent regulations such as technological advance and
improvement of knowledge, which ultimately leads to overestimation of
environmental costs of government regulations (Porter and Van der Linde, 1995a).
The Win-win Paradigm: Collaborative Government Roles as Reforms. Contrary
to the win-lose paradigm, the win-win paradigm views environmental regulations as
an impetus to innovation that supports economic productivity and competitiveness
(Porter, 1991; Porter and van der Linde, 1995a, 1995b). It contends that stringent
environmental regulations, when properly designed, trigger innovations that lower
the total cost of a product or improve its value.... [and] makes companies more
productive (Porter and van der Linde, 1995a: 120). This result occurs because
innovation can deal with pollution that results from inefficient use of resources and
adds costs, due to either poor utilization of materials or processing. Efficient
utilization of materials becomes more important than purchase of low cost materials
in global market contexts to gain market competitiveness (Porter and van der Linde,
19


1995a, 1995b). This is largely because global markets provide firms with easier
access to lower cost materials.
Innovation in response to environmental regulations can take two forms:
innovative pollution control technologies and innovative pollution prevention. Both
foci of innovation can improve efficient use of resources and save costs, which
ultimately leads to market competitiveness in two ways. First, as a way to deal with
pollution restricted by regulations, firms install innovative pollution control
technologies. The technologies enable firms not only to treat pollution in a cost-
effective manner but also recover the waste products in usable forms (Porter and van
der Linde, 1995a: 125). For example, Thermo Electron Corporation is able to recycle
printed paper by using de-inking technologies (Ibid.).
The second form of innovation indicates that regulations can encourage pollution
prevention. This approach addresses the cause of pollution before the pollution occurs.
It is possible by either better utilizing existing input materials or replacing them with
materials producing less pollutant. This allows firms to improve their resource
efficiency and subsequently save costs of production by reducing the costs of
pollution abatement. For example, responding to new regulation that restricts solvent
emission, 3M substituted water-based solutions for the solvent used to coat product
and significantly reduced the emissions. This technique gave the firm a competitive
advantage by lowering production costs and improving products. Besides, the
innovation suggested the firms green reputation to consumers (Porter and van der
20


Linde, 1995a: 126), further benefiting this firm. In many cases, innovative
technologies and practices, once developed, take time to learn and develop and thus
can result in a competitive advantage (Nehrt, 1996).
Stringent regulation, however, does not automatically drive innovation unless it
is properly designed. It should create a conducive environment in which governments
support and encourage firms to attain the stringent goals of regulation (Ashford,
1993). In this regard, the updated role of regulatory agencies is important (Porter and
van de Linde, 1995a). In a change from the traditional roles that required regulators to
mandate environmental standards and overall environmental performance, regulatory
agencies are now designed to function as coordinators and facilitators that encourage
innovation (Porter and van der Linde, 1995a, 1995b). They help firms overcome
organizational inertia and foster creative thinking that leads to innovation (Ibid.,
1995b: 100). Particular activities of the agencies include providing technical
information and assistance and advertising environmental leadership. This
collaborative effort with government makes firms aware of potential opportunities
and benefits of innovation and less uncertain about their investment, and ultimately
encourages them to come up with innovative ideas.
Conclusions derived from this perspective are not sufficiently generalizable yet,
however, because all previous studies have used a case. It is readily admitted that the
situations do not always occur and may in fact be rare (Porter and van der Linde,
1995b. Walley and Whitehead, 1994).
21


Historical Perspectives on
Environmental Regulatory Approach
In the political arena, the visions of regulatory approach have been complicated
with factors in political, social, and economic contexts. They have continuously
evolved as a result of interaction among the factors.
Since the 1970s, the three major regulatory approaches have been identified
(Mazmanian and Kraft, 1999): confrontational, efficiency-based, and collaborative
regulatory approaches. The evolution of regulatory approach is demystified by
adopting Kingdons (1995) multiple streams (MS). Particular attention is paid to
addressing: (1) what factors drive change in regulatory approach; and (2) how policy-
makers have shifted the foci and emphases of environmental regulations to address
environmental problems.
Environmental Regulatory Approach Change as a Dynamic Process. How have
the changes in environmental policy emerged? As generally recognized, U.S.
environmental policy is the product of dynamic and fluid policy-making processes
where the causality of particular policy outcomes is unclear, often unexplained, and
largely associated with multiple factors that arise from political, social, and economic
conditions. Kraft and Vig (2003) implicitly describe the unstable and complex
processes of environmental policy: the history of environmental policy in the United
States.. ..has been highly uneven, with significant discontinuities, particularly since
the late 1960s. It can be understood.. .as the product of the convergence or divergence
22


of two political currents, one that is deep and long term and the other shallow and
short term (p. 9). Environmental policy, they argue, depend [s] on how
environmental issues are defined by various policy actors, the role of media in
covering the disputes, the state of the economy, the relative influence of opposing
interest groups, and political leadership (Kraft and Vig, 2003: 2).
To effectively examine how U.S. regulatory policy has evolved over time, this
dissertation adopts Kingdons (1995) well-known multiple streams (MS) theory. The
theory proposes a certain randomness of change in policy agenda that is convoluted
with multiple factors in particular times and places. Kingdon emphasizes three
process streams problems, policies, and politics that define the development of
public policies. To summarize: Problems become prominent to policy-makers when
there are systematic indicators that measure the magnitude of conditions and dramatic
crises occur. Assessing magnitude is largely influenced by dominant values and
beliefs in a particular period. Policies are ideas and proposals for dealing with policy
problems. Ideas are tested with various mechanisms, such as hearing and
conversations, through which they can be either eliminated or sustained. In some
cases, policy ideas make adjustment when they confront technical difficulties and
conflict with policy makers values. Politics are influenced by the national mood,
interest group political influence, and the turnover of personnel (including via
elections) in government. When these three streams are coupled at critical moments
in time, policy windows open and the policy issues receive prominence (Kingdon,
23


1995). The role of policy entrepreneurs is important in Kingdons framework since
opportunity windows do not last long and can close immediately. Policy
entrepreneurs are capable of promoting policies they favor with their resources, time,
and skill at coupling.
Let us now review the development of environmental regulations in the United
States in the 1970s, 1980s, and 1990s, using Kingdons approach.
The 1970s: Confrontational Environmental Regulatory Approach. In terms of
the problem stream, prior to 1970, environmental protection had to a large extent
been left to state and local governments authorities (Ringquist, 1993). Amid
competition for economic development, environmental issues had generally not been
the primary focus of attention from the governments. Economic pressures made the
governments lower their own environmental standards in a competitive mode to
encourage investment from industries. As a consequence, environmental problems
continued to accumulate and soon became viewed in many quarters as a major threat
to human health as well as potentially harmful to ecological systems. A series of
environmental incidents manifested the problems (Andrews, 1999: 202-212): severe
smog killed twenty people in Pennsylvania in 1948; in the mid-1950s, radioactive
fallout was discovered in human milk through ecological food chains; and
carcinogens were found in cranberries in 1959. Environmental concerns of the public
were amplified by Rachel Carsons (1962) best-selling Silent Spring that warned of
detrimental damage from pesticide spraying on ecological systems and subsequent
24


effects on human health. The wide dissemination of television into American family
facilitated vivid images of environmental threats and consequences, such as when
thousands of tons of spilled oil took its toll on sea animals along the Santa Barbara
Channel in California in 1969 (Andrews, 1999).
During this period, the policy stream reflected the growing environmental
problems and clarified the need for a greater regulatory role of the federal
government. An immediate consensus was built among policy communities such as
scientists, technicians, academics, and policy-makers that environmental degradation
was a nationwide problem and thus was the primary responsibility of the federal
government (Kraft and Vig, 2003; Ringquist, 1993); they argued that the negative
externality of environmental pollution produced by industry could only be controlled
by direct action from the federal government. To meet this expectation, it was
recommended to equip administrative and regulatory legal apparatus for addressing
broad and pervasive environmental problems (Kraft and Vig, 2003).
In this context, the political stream increasingly emphasized environmental issues,
gradually drawing attention from policy-makers as concerns of the general public
over the environment grew apace of accelerated socio-economic development
accelerated after the World War II (Kraft and Vig, 2003; Andrews, 1999). Led by
environmental activists, the general public started paying more attention to
environmental conditions than to further improvement of economic prosperity. More
and more citizens became aware of the potentially dangerous consequences of the
25


deterioration of environment when water and air on which they depended became
poisoned and threatened their lives. Voices demanding a safer, cleaner, and healthier
environment were rising from people in all walks of life. The first Earth Day in April
1970, when millions of people demonstrated for better environmental quality and
resource conservation, strongly indicated to policy-makers the direction and
magnitude of environmental policy. The environmental movement was clearly
viewed by policy-makers as a message of Americans that demanded tough new
measures for environmental protection (Kraft and Vig, 2003).
The result of all these perceptions resulted in what Kingdon calls a window
opening, that is, a public outcry against environment deterioration galvanized policy-
makers into action. The nationalization of pollution control policy gained momentum
when Senator Edmund Muskie (D-Maine) was appointed chairman of the new
subcommittee on Water and Air Pollution of the Public Works Committee (Andrews,
1999; Kraft and Vig, 2003). His dominant role as policy entrepreneur played into
promoting federal air and water quality laws. Enactment of the National
Environmental Policy Act (NEPA) of 1969, signed by President Richard Nixon,
signaled a significant change in environmental policy. NEPA provided a government-
wide policy framework by mandating environmental impact statements for the
major federal actions that might affect the environment (Andrews, 1999). The
Council on Environmental Quality (CEQ) was established in this context where it
could provide environmental expertise to Congress and the president. An
26


unprecedented series of federal environmental legislation began with the enactment of
the Clean Air of Act (1970) and continued unabated to include the Clean Water Act
(1972), Toxic Substances Control Act (1976), the Endangered Species Act (1976),
and the National Forest Management Act (1976), and the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) (1980).
Most of the federal regulatory statutes delegated major regulatory responsibilities
to the new federal Environmental Protection Agency (EPA) established in 1970.
Exclusive and broad discretion to control environmental pollution that state and local
governments had assumed, prior to 1970 were answered by the agency. The EPAs
major tasks legislated by the Congress were to set national standards for
environmental protection, to monitor pollution activities and to enforce anti-pollution
laws (National Academy of Public Administration, 1995). The agency exercised legal
authority over industrial polluters and state and local governments regarding dealing
with environmental issues (Fiorino, 2001). Heavy reliance on direct regulations to
obtain environmental goals created legalistic and adversarial relationships between
EPA and industry as well as state and local governments (Kagan, 1995).
The 1980s: Efficiency-based Approaches to Environmental Protection. Despite
significant improvement in the environmental quality of the air, water, and land
during the 1970s, the problem stream during the 1980s reflected growing concern
over regulatory costs and effects on the economy that had arised in the late 1970s
(Kraft and Vig, 2003; Mazmanian and Kraft, 1999). Major shortcomings were
27


assessed in regulatory approach that did not provide efficient environmental solutions
and incentive structures for stimulating the proactive environmental protection of
firms. At the same time, policy-makers realized that there was lack of institutional
capacity to administer and implement outpouring federal environmental regulations.
The existing concern was exacerbated by the oil and economic crises at the end of
Carter Administration and forced policy makers and associated policy communities to
look into new environmental policy models and strategies (Kraft and Vig, 2003; Kraft,
1984).
A major focus of the policy stream was to design ways to balance the
discrepancies between economy security and the environment. Although there were
continuous debates about models and strategies, the win-lose perspective that
assumed environmental protection had an adverse impact on economy was prevalent
among policy communities (Kraft and Vig, 2003; Fiorino, 2001). It supported
markets as the most cost-effective regulatory mechanism, arguing that market
mechanisms could provide a firm with economic incentives for environmental
protection as well as facilitate the optimal levels of environmental protection (Stavins,
1989). Economic incentives could be stimulated through various economic measures
such as pollution fees and charges, taxes, and markets for emission trading. It
asserted that markets could help a firm to determine the level of environmental
protection at which its economic costs are not above economic benefits. Based on this
logic, the proponents downplayed the regulatory role of governments, which they
28


believed incurred unnecessarily expensive regulatory costs and created dissonant
relations among actors.
Dominated the political stream, the economic recession of the early 1980s
brought the publics and policy-makers attention to national economic recovery
rather than environmental protection. Ronald Reagans election as President in 1980,
in particular, signaled a turn for worse regarding proactive environmental concerns.
Upon his inauguration, Reagan undertook his new federalism policy initiative that
increased policy responsibility and reduced fiscal contribution to states.
Environmental policy was not an exception to this initiative. He effectively pursued
his initiative and opened a policy window for a market-oriented regulatory approach,
at least during the first term of his presidency. Based upon his understanding that
environmental regulation was a fundamental barrier to economic growth, Reagan
aggressively pushed his regulatory reform agenda through two significant means.
First, President Reagan limited the federal government role in environmental
regulations through the administrative power and strategy rather than through
legislation (Kraft and Vig, 2003; Vig, 2003). Four major administrative strategies that
Reagan adopted were (1) careful screening of all appointees to environmental and
other agencies to ensure compliance with Reagans ideological goals, (2) tight policy
coordination through cabinet councils and White House Staff, (3) deep cuts in the
budgets of environmental agencies and programs, and (4) an enhanced form of
regulatory oversight to eliminate or revise regulations considered burdensome by
I
29


industry (Vig, 2003: 107). For example, he appointed his conservatives such as
Anne Gorsuch and James G. Watt (Adminstrator to the EPA and Secretary of the
Interior, respectively), who in turn deinstitutionalized environmental federal agencies;
moreover, he attempted dramatic budget cuts in CEQ and EPA, and constrained
regulatory activity by demanding increased and expensive regulatory oversight (e.g.,
cost-benefit analyses, regulatory impact statements) through the Office of Information
and Regulatory Affairs (OIRA) in the Office of Management and Budget (Vig, 2003).
The second means to pursue his environmental reforms was by devolving the
greater regulatory responsibilities of federal government onto the states (Lester, 1995).
With the assumption that states can be responsive and innovative because of their
familiarity with local conditions and preferences, Reagan provided the state
governments with greater latitude to design and implement regulations. The states
were projected to become experimental places in which market-based incentive
measures could be tried. Several states, such as California and Oregon, adopted
innovative economic measures, such as emission fees, environmental taxes, and
charges to prevent environmental degradation and achieve environmental goals
(Lester, 1995).
Environmental reform efforts that Reagan thought to be more efficient, however,
were opposed by strong factions in both Congress and the public during the second
part of his Administration (Kraft and Vig, 2003). Republican Congressmen who had
initially endorsed the Reagan administrations environmental reform later criticized
30


his actions in environmental policy. Public support for environmental conservation
markedly increased and environmental groups raised their voices against what they
viewed as his radical policy changes. This unfavorable political mood, to some extent,
restored the previous environmental efforts. The former EPA administrator, William
Ruckelshaus, who supported aggressive environmental regulatory policy during the
1970s, was reappointed to the EPA and brought back some institutional capacity.
These reinvigorated environmental efforts were evident in the enactment of a series of
environmental laws that basically strengthened EPA regulatory power after 1984.
These laws included the Amendment of Resource Conservation and Recovery Act
(1984), the Safe Drinking Water Act (1986), the Superfund Amendments and
Reauthorization Act (1986), and the Emergency Planning and Community Right-to-
Know Act (1986).
The 1990s: The Collaborative Approach to Environmental Protection. The
policy stream during the 1990s was heavily influenced by the publics perception of
the failed promises of environmental efficiency through reduced government
regulation that the Reagan Administration had hoped to bring about by devolving
environmental responsibility to states and by using market-place incentives to achieve
industrial pollution control. The Reagan initiatives were increasingly overshadowed
by the unsatisfactory environmental outcomes. Reagans environmental reforms
produced concern about the unexpected conditions in which states could compete for
lowering environmental standards to attract businesses (often called the race to the
31


bottom) (Duerkesen, 1983), but they also stimulated states to develop and implement
innovative policies such as emission fees and environmental taxes and charges
(Lester, 1986). The performances of the states in achieving environmental goals were
widely discrepant (Lester, 1995). An attempt to leave environmental regulatory
authority to the states followed by substantial budgetary cuts in environmental
program areas (e.g., air, water, hazardous wastes) was assigned the major blame for
the variations in the oiutcome of states environmental programs. States that lacked
the institutional capability (including financial and organizational resources) and
evinced less commitment to environmental protection were seen to be less likely to
pursue aggressive environmental actions, compared to those with strong institutional
capacity and environmental commitment (Lester, 1995). These latter states were
more likely to focus on economic development rather than environmental quality, to
the apparent dissatisfaction of their citizens.
This unbalanced development in environmental policy produced skepticism
about effectiveness of the Reagan regulatory reforms, especially since pollution was
not confined to specific geographical boundaries. Equally, citizens expressed
concerns over state governments inability to deal with massive environmental
problems, such as global climate change and ozone depletion (Vig and Kraft, 2003).
This was manifested by the Rio de Janero Earth Summit (1992), where delegates
warned of the destruction of irreplaceable environmental resources and called for
environmentally sustainable development on a worldwide basis. The complexity
32


and global scales of environmental problems created increasing public willingness to
support a federal government role in environmental policy, but one different
directions from the 1970s environmental approach, which had been largely
confrontational in nature and problematic in its results.
The Reagan Administrations environmental policy reform provoked increasing
dissatisfaction based on its inability to tackle the significant concerns of a broad array
of environmental interests, such as policy analysts, the business communities, and
especially environmental groups (Kraft and Vig, 2003). It was clear that market
systems had not provided a cure-all for policy systems tainted by inefficient and
unresponsive mechanisms and that the role of the federal government was apparently
(once again) necessary in environmental policy. The policy dilemma now, however,
was how governments could effectively respond to the demand for environmental
protection while dealing with prevalent public skepticism about their performances.
During the 1990s, new models that prescribed updated roles for governments as
collaborators rather than regulators were gaining general acceptance in environmental
policy communities, including researchers and policy-makers during the 1990s
(Fiorino, 2001; Lober, 1997). These new models were predicated upon the
assumption that environmental and economic goals could be reconciled or even
complementary when policies are properly designed (win-win perspectives) (Porter,
1990; Hajer, 1995, 1996; Templet, 1995; Clinton and Gore,1992). The perspectives
were stimulated by gradual increase in the number of private sector firms (such as
33


3M) initiating their own pollution reduction, i.e., voluntarily going beyond legal
mandates.
The 1992 inauguration of the Clinton and Gore Administration produced a new
political stream, encouraged by the anticipation of significant progress in
environmental policy, reflecting Clintons campaign promise of strong environmental
actions.(Vig, 2003). Moreover, Vice President A1 Gores record as the leading
environmentalist particularly helped establish the credentials of the Administration
among environmental groups and the public. Despite the departure from the
presidential campaign commitment to environmental progress in the early days of his
presidency, Clinton pushed their environmental reform efforts through the broader
policy agenda of reinventing government during his second presidential term.
Reinventing environmental regulations, launched in 1995, promote innovation and
flexibility, increase community participation and partnerships, improve compliance
with environmental laws, and cut red tape and paperwork (Gore, 1996). Reinvention
particularly focused on collaborative efforts by stakeholders, such as industry,
government, and environmental organizations, in such a way that both economic and
environmental goals can be achieved (Rosenbaum, 2000). The reform largely
responded to increasing national and international challenges, respectively, for
making government efficient and responsive and dealing with complex global
environmental problems (Gore, 1996). As part of the reinvention reform efforts, the
EPA initiated voluntary environmental programs, including the Common Sense
34


Initiative, Project XL, the National Performance Partnership System, and
Performance Partnership Grants (Rosenbaum, 2000).
Facing Republicans opposition, Clinton further strengthened his environmental
reform agenda through his executive power as Reagan once did but in the opposite
directions (Vig, 2003). A good example was the appointment of EPA Administrator
Carol Browner. Under her direction, the EPA took strong environmental measures
(e.g., tighter ambient air quality standards for ozone and small particulate matter) to
protect the environment (Ibid.). She also created an Office of Sustainable Ecosystems
and Communities to promote sustainable development by providing communities
with technical and scientific expertise, mediation and negotiation training services for
regional EPA offices, assistance in developing conservation assessment and planning
profiles, and making sustainable indictors (Mazmanian and Kraft, 1999: 31). In
addition, the collaborative approach was promoted by the Presidents Council on
Sustainable Development. The organization was mainly responsible for developing
ways of balancing economic and environmental goals.
Discussion: Environmental Regulatory Approach
Andrews (1999:358) has suggested that The United States has experienced
periodic swings of the pendulum between policy control by advocates and
opponents of such a capacity, between initiatives to create and initiatives to destroy
effective environmental governance. Change in environmental policy was the result
35


of on-going political battles, coupled with fluctuating national interests in
environmental quality and balanced by economic concerns. Improving environmental
quality has undergone constant debate, largely divided by political ideologies -
liberalism supporting public purposes stressed greater government roles in
environmental policy, while conservatism emphasized private interests and touted
market-based measures and weaker government regulatory roles..
The disparate camps in political arena, however, suffered their own shortcomings
and limitations; they were could not completely address the inefficiencies and
ineffectiveness of environmental protection policies. In addition to the insufficient
models of environmental protection, environmental problems themselves became
increasingly contentious and complex, as clearly evidenced in global environmental
issues (e.g., global climate change). They demanded more sophisticated regulatory
models that accommodated collaboration from various stakeholders, including
academic, government, business, and environmental groups. It became important to
find the middle ground where the intellectual and practical interests of all relevant
stakeholders were integrated and balanced (Hoffman et al., 1999). This is because
environmental regulations take place in the social networks in which members
negotiate, compromise, and cooperate to find solutions where different interests are
resolved and mutual satisfaction is obtained (Ibid.). It therefore is desirable to create a
regulatory environment in which the relevant interests can collaborate toward a
flexible and creative solution to environmental protection.
36


The final and most difficult challenge in addressing environmental concerns
came from the public. The environmental camps are not sufficient to meet the
seemingly contradictory demands of a public that asked the federal government to
provide greater environmental protection, while disagreeing over government
intervention in environmental regulations (Cashore and Vertinsky, 2000; Andrews,
1999). The question was how to make the federal government accountable for
environmental improvement without harming or restricting economic property. The
collaborative regulatory approach in the 1990s is thought to address these questions.
It focuses on collaboration between governments, businesses, and environmental
groups to protect the environment. It works at its cooperative best through both
governments and markets; an illustration would be governments efforts as
collaborators (e.g., technical supports) rather than regulators. It also adopts market
incentive measures (e.g., advertising environmental leadership) to promote
environmental protection. Voluntary environmental programs are one example of the
collaborative approach. They are explained in detail in the next section.
37


Voluntary Environmental Programs (VEPs)
Overview
Voluntary environmental programs (VEPs) are considered by many to be a new
abatement instrument, not only because they were recently developed but because
they rely on alternatives to traditional (e.g., command-and-control) mechanisms;
rather than controlling pollution behavior through prescribed rules, standards, and
sanctions, they do not have prescribed, explicit control mechanism to compel the
improvement of environmental performance (Dietz and Stem, 2002). As implied in
the phrase, they are designed to provide alternative opportunities for meeting
environmental goals (normally beyond regulatory requirements) through essentially
voluntary efforts. They provide firms with flexibility (performance-based rather than
technology-based) and incentives to attain the determined goals.
Many VEPs have been initiated since 1990; the EPA itself has developed and
implemented more than 33 voluntary programs (Mazurek, 1998, 2002) in the U.S.
(refer to Table 2-1), while there are more than 310 VEPs in nations comprising the
European Union (Carraro and Leveque, 1999). They have been established to deal
with a broad variety of environmental problems, including global climate change,
toxic chemical emission and wastes, and water pollution. The best known programs
of this nature in the U.S. include the 33/50 (1991), Green Lights (1991), Climate
Challenge (1994), Project XL (1995), and Responsible Care programs (1989).
38


VEPs can be placed in three major categories, depending on level of government
involvement (Labatt and Maclaren, 1998; Khanna, 2001; Mazurek, 2002). The first
type is public voluntary programs that government agencies initiate to promote the
improvement of environmental performance. The EPA-sponsored 33/50 and Green
Lights programs and DOE-sponsored Climate Challenge program belong in this
category. Firms are provided technical assistance and information as well as public
recognition in exchange for their participation. The second type is negotiated
voluntary programs established through a process of negotiation among government
agencies and industry (e.g., determining targets for pollution abatement). There are
two such programs -- the Common Sense Initiative (1994) and Project XL in the U.S
- in which the EPA and industry have reached agreements. Finally, there are
unilateral voluntary programs. These are initiated without involvement of
government agencies and led either by firms independently (in such form as
environmental plans), by an industrial trade association (e.g., CMA) or by
independent certifying organizations (e.g., ISO) (Khanna, 2001).
Of the various types of VEPs, public and unilateral voluntary programs are
relatively commonplace in the U.S. (refer to Table 2-1). There are known to be more
than 31 public voluntary programs and 9 unilateral voluntary programs led by
industrial trade organizations (Mazurek, 2002). In public voluntary programs, firms
afforded flexibility in achieving pollution reduction (Noberg-Bohm, 1999). There are
two different ways in which governments promote environmental goals. The first way
39


is to specify environmental goals that firms can voluntarily achieve. In the case of the
33/50 voluntary program, firms were provided with environmental goals that sought
to attain a 33 percent reduction of 17 toxic chemicals by the year 1992 and 50 percent
by 1995. It is important to note that the means of achieving these goals were largely
left to individual firms' discretion. The second way is to promote the use of efficient
technologies and environmental practices to facilitate pollution emission reduction.
The Green Lights program is designed to accomplish this purpose, as it encourages
firms to install energy-efficient lighting technologies in their facilities.
In unilateral voluntary programs, firms improve environmental performance in
three different ways. First, firms undertake voluntary environmental initiatives (VEIs)
by developing their own programs such as environmental plans, environmental
auditing, and environmental codes of conduct (Khanna, 2001). For example, many
firms introduced their own environmental programs: 3M developed the 3P program to
prevent pollution; and Dow Chemical initiated the WRAP (Waste Reduction Always
Pays) program to accomplish the goal of zero discharge (Ibid.: 296). Second, firms
reduce their environmental impacts by participating in industry-led voluntary
programs. CMAs Responsible Care Program (RCP) (1989) and the National Ski
Areas Associations (NSAA) Sustainable Slopes Program (SSP) (2000) are examples.
The RCP specifies a set of guiding principles and codes of management practice to
address environmental pollution prevention, protection and promotion of health and
safety of employees, improvement of community relations, and improvement of
40


relations with suppliers and customers (CMA, 1991; King and Lenox, 2000).
Similarly, SSP includes environmental management principles and practices that
cover general areas such as water resources, energy conservation and use, waste
management, and air quality (NSAA, 2001; Rivera and deLeon, 2004). In both
programs, firms are not required to achieve specific levels of pollution reduction and
may implement these practices at their own discretion. To ensure implementation
progress, firms are required to submit self-reports annually, although some are of a
proprietary nature (Khanna, 2001; King and Lenox, 2000; Rivera and deLeon, 2004).
In the last option, firms improve their environmental performance by adopting
programs established by independent certifying organizations. The ISO-developed
series of environmental management systems, such as ISO 14001 (mainly for
manufacturing and service firms), is the best-known example. There are five major
components that firms need to consider in order to be certified: (1) developing
environmental policy; (2) establishing implementation plans; (3) implementing a
management system; (4) evaluating environmental performance; and (5) correcting
and improving environmental performance (Delmas, 2002; Adams, 1999). During the
certification period, firms are required to undergo costly internal and external audits
that check each components implementation.
Although negotiated voluntary programs have not become popular in the U.S.,
they encourage firms to find ways to reduce emissions beyond regulatory standards in
a cost-effective manner. In return for demonstrating the improvement of
41


environmental performance, the programs provide regulatory relief (e.g., relaxed
administrative and statutory regulatory requirements) (Khanna, 2001). They are not
popular since there are uncertainties regarding the USEPAs statutory authority to
achieve regulatory reform while exempting companies from complying with current
statutes and regulations (Ibid.: 295).
42


U)
Table 2.1 Voluntary Environmental Program Categories in the United States______
PUBLIC VOLUNTARY UNILATERAL
Climate Change Action Plan__________Pollution Prevention
1. AgStar Program (1993) 1.33/50(1991)
2. Climate Wise (1993)
3. Chlorofluorocarbon Substitutes (post
1993)
4. Coalbed Methane Outreach Program
(1994)
5. Commuter Choice (post-1993)
6. Energy Star Buildings (1994)
7. Energy Star Homes (1995)
8. Energy Star Office Equipment
(1993)
9. Energy Star Transformer Program
(1995)
10. Environmental Stewardship
Initiative (1997)
12. Green Lights (1991)
2. Design for the Environment (1991)
3. Environmental Accounting Project (1992)
4. Environmental Leadership Program (1994)
5. Green Chemistry (1992)
6. Indoor Environments Program (1995)
7. Pesticide Environmental Stewardship Program
(1993)
8. Waste Minimization National Plan (1994)
9. Water Alliances for Voluntary Efficiency
(WAVE) (1992)
10. Voluntary Standards Network (1993)
1. Responsible Care (1988)
2. Responsible Distribution Process
(1991)
3. Responsible Recycling Code
4. Responsible Carrier (1994)
5. Coatings Care (1996)
6. Encouraging Environmental
Excellence (1992)
7. Sustainable Forestry Initiative
(1995)
8. Strategies for Todays
Environmental Partnership (1990)
9. Great Printers Project (1992)
12. HFC-23 Reductions (post-1993)
13. Landfill Methane Outreach
Program (1994)
14. Natural Gas Star (1993, 1995)
15. Ruminant Livestock Methane
Efficiency Program (1993)
16. Seasonal Gas Use for the Control
of Nitrous Oxide (post-1993)
17. State and Local Climate Change
Outreach Program (1993)
18. Transportation Partners (1995)
19. The U.S. Initiative on Joint
Implementation (1993)
20. Voluntary Aluminum Industrial
Partnership (1995)
NEGOTIATED
1. Project XL (1995)
2. Common Sense Initiative (1994)
21. Waste Wise (1992)
Source(s): Mazurek, 1998, p. 78


Corporate Participation in VEPs
Theoretical Perspectives on
Corporate Voluntary Participation
There are two major perspectives providing contradictory views of corporate
VEP participation: environmental economics and proactive environmental
management. While the environmental economics perspective (EEP) criticizes
voluntary participation as an opportunistic behavior that disguises poor environmental
performance and weakens regulatory standards, either existing or forthcoming, the
proactive environmental management perspective (PEMP) advocates firms VEP
participation as a win-win approach to environmental protection.
EEP relates firms VEP participation to one form of political strategy for
influencing regulatory processes (i.e., easing regulatory monitoring, preempting
regulations) (Arora and Cason, 1996; King and Lenox, 2000; Lyon and Maxwell,
1999; Welch et al., 2000). On the other hand, PEMP suggests that the VEP is a
channel through which firms can simultaneously abate pollution and become
competitive in markets. Proactive environmental efforts through VEPs help firms
establish environmental reputation, capture green market segments, and attract
environmentally conscious investors (Arora and Cason, 1996; Lyon and Maxwell,
1999; Poerter and van de Linde, 1995a, Rivera, 2002).
44


Environmental Economics Perspective (EEP). The environmental economics
perspective (EEP) is the extension of the win-lose paradigm of environmental
regulation and shares its assumption that firms are profit maximizers in perfectly
competitive markets where they have perfect information, and where no superior
products or economic performances exist. From this perspective, voluntary
environmental efforts through participation in VEPs do not produce any benefit but
merely add cost to firms.
The important question then is why firms choose to participate in voluntary
programs. The EEP identifies the appropriate reason as an example of opportunistic
behavior on the part of a firm. More specifically, it posits that the VEP is a
mechanism by which a firm can influence environmental policies to its benefit and
weaken adverse political mobilization from environmental interests such as
consumers and environmental groups. That is, firms participate in VEPs not to
improve their environmental behavior but to disguise their environmental
performance.
The environmental economics perspective on voluntary participation is founded
upon political economic theory that views the formulation of regulations as a function
of regulated firms (and industries) and their political influence; firms use public
regulations as a crucial mechanism by which to advance their private interests
(Becker, 1983; Pelzman, 1976; Stigler, 1971). Firms may once have merely
responded to new regulations, but now they assume strategic postures toward
45


regulations; they not only adjust themselves to future regulations but also seek to
influence or shape regulations to obtain or reinforce their preferred business
opportunities (Hillman and Hitt, 1999; Weidenbaum, 1980). As government
regulations became intricately related to and affected by firms respective competitive
positions and profitability in markets, firms (and industries) have actively engaged in
the regulatory process (Gale and Buchholz, 1987; Shaffer, 1995; Yoffie, 1987).
Many scholars consider VEP participation as a strategic posture by which firms
can: (1) relieve regulatory scrutiny; (2) abate the threat of environmental regulations;
and (3) produce a barrier to market entry or competition (Maxwell, Lyon, and Hackett,
1998; Segersen and Miceli, 1998; Videras and Alberini, 2000; Welch et al., 2000).
First, A firm (facility) that had a poor environmental performance track record was
likely to participate in the 33/50 voluntary program (Arora and Cason, 1995; Khanna
and Damon, 1999; Videras and Alberini, 2000), the Responsible Care program (King
and Lenox, 2000), and ISO 14001 (Potoski and Prakash, 2005). Similarly, facilities
that experience a greater intensity of government monitoring or have high potential
for oversight are likely to participate in ISO 14001 (Potoski and Prakash, 2005), the
Costa Rican Certification for Sustainable Tourism program (Rivera, 2002), and the
Sustainable Slopes Program established by the U.S. NSAA in partnership with the
federal and state governments (Rivera and deLeon, 2004). These firms participate in
VEPs to avoid arousing pressure from regulatory agencies (Khanna, 2001: 310). The
influence of poor environmental performance on VEP participation is more likely
46


when the industry faces a greater regulatory background threat (Segerson and Miceli,
1998); such firms are wary of becoming a major monitoring target for regulatory
agencies. The recent contradictory result that firms poor environmental performance
is not related to the Department of Energys Climate Challenge voluntary program
participation can be explained in this context (Welch et al., 2000); the program is
established on the weak regulatory background threat of carbon dioxide in the U.S.
The second motivation for VEP participation is related to weakening a potential
regulatory threat, either existing or forthcoming. Firms (industries) that operate under
a perceived threat of environmental regulation are likely to participate in voluntary
programs such as 33/50 (Khanna and Damon, 1999), WasteWise (Videras and
Alberini, 2000), and Climate Challenge (Welch et al., 2000). Firms (industries) that
emit a larger volume of toxic pollutants and are exposed to higher risk of potential
liability for human health and environmental damage may have a stronger incentive
to adopt voluntarism than those that have fewer pollution problems. This is because
the penalties and potential liabilities implied by non-compliance and violations are
very expensive under mandatory environmental regulations such as the Superfund
Act of 1986 and the CAA Amendments of 1990 (Khanna and Damon, 1999). They
are more likely to view VEPs as opportunities for reducing their current levels of
toxic pollutants and wastes, as well as for lowering the risk of future environmental
liability (Ibid.). In addition to lowering potential liability under existing regulations,
VEP participation can reduce or even prevent the imposition of new regulations by
47


reducing the political mobilization of environmental groups and consumers for
introducing higher pollution standards (Maxwell, Lyon, and Hackett, 1998; Maxwell
and Lyon, 2000). The effect is greater in regions where community environmentalism
is stronger (Arora and Cason, 1996; Henrique and Sadorsky, 1996; Khanna and
Damon, 1999; Welch et al., 2000).
The first and second motivations occur because the environmentally friendly
image that firms project through VEP participation could make regulatory agencies
and community environmental groups confident about their environmental efforts,
thus diverting regulatory and environmental scrutiny toward other firms.
Finally, VEP participation could be used not only to decrease regulatory pressure
but also to increase it. Firms with the ability and resources to make progress in
environmental performance are likely to perceive VEP participation as an opportunity
to do so, and thus signal to lawmakers and consumers the need to increase
environmental standards for their entire industry (Salop and Scheffinan, 1983). This
results in setting up a barrier to market entry for competitors that are less capable of
controlling pollution, which is what economists call rent seeking(Buchanan,
Tollison, and Tullock, 1980). The introduction of greater government intervention
can seriously interfere with economic performance of firms, especially those for
which abates pollution abatement comes at higher cost. This puts voluntary
environmental firms in a competitive market position (Gale and Buchholz, 1993;
Reinhardt, 1999).
48


Proactive Environmental Management Perspective (PEMP). The proactive
environmental management perspective (PEMP) emerges from the win-win paradigm
of environmental regulation and shares its premise that while firms are heterogeneous
in terms of their market performance, innovation capabilities and consumer
preferences are vastly different. PEMP views VEP participation as a strategic
opportunity by which firms simultaneously can achieve both pollution abatement and
economic performance. VEPs can help firms enhance market competitiveness
through three mechanisms (Arora and Cason, 1996; Arora and Gangopadhyay, 1995;
Khanna and Damon, 1999; Khanna, Quimio, and Bojilova, 1998; Konar and Cohen,
1997; Rivera, 2000; Russo and Fout, 1997; Porter and Linde, 1995): (1) improving
productivity; (2) taking over the green market; and (3) attracting investors.
In the first instance, innovative environmental technology and management
practices that firms adopt through a VEP help firms not only enhance their
environmental performance but also improve productivity and thus reduce production
costs. This makes the firms more competitive in their chosen markets. Porter and
Linde (1995b) provide several cases where firms simultaneously manage the
environment and increase their competitiveness in markets. For example, 3M reduced
hazardous wastes by applying innovative techniques to adhesive production. The
pollution reduction leads to reduced use of raw materials and eliminates costs of
handling and disposing of hazardous wastes, thus making overall production costs
cheaper and the firm more competitive in markets (Ibid.: 102).
49


Second, voluntary environment initiatives undertaken through a VEP can create a
corporate image of green1 and thus attract environmentally conscious consumers
who are willing to pay more for green products (Arora and Cason, 1995; Aroa and
Gangopadhyay, 1995; Khanna and Damon, 1999; Rivera, 2000; Russo and Fout,
1997). In studying hotel participation in the Costa Rican Certification for Sustainable
Tourism program, Rivera (2002) found a positive relationship between environmental
performance and economic performance that enjoys price premiums and higher sales
of products. In addition to capturing the green market segment, superior
environmental performance is positively related to economic performance. Russo and
Fout (1997) find a significant link between environmental performance and economic
profitability. The positive impact of environmental performance on economic
performance is also evident in Khanna and Damons (1999) study, which examined
firms participation in the 33/50 voluntary program.
Finally, voluntary environmental activity can attract potential investors (Khanna,
Quimio, and Bojilova, 1998; Konar and Cohen, 1997). Recently, environmental
performance has become an important criterion by which investors might assess their
potential investment. Many investors expect that environmentally friendly firms are at
a market advantage because of their green reputation and environmental
1 What greening actually means remains unclear as scholars use the term with different definitions. It is
generally referred as a process of how organizations become environmentally sensitive and responsive
(Forbes and Jermier, 2002). More specifically, it covers diverse forms and stages of environmentally
friendly organizational activities and programs.
50


capabilities, which are considered important measures of the competitiveness of firms
(Hart, 1995; Williams, Medhurst, and Drew, 1993). The influence of environmental
performance on market competitiveness is particularly convincing in a time when
environmental information (such as toxic chemical releases and other waste-
management activities) is widely available to the public through EPAs Toxics
Release Inventory database (TRI). Several empirical studies show that TRI disclosure
for emissions is negatively related to stock market returns while positively associated
with improvement of environmental performance (Khanna, Quimio, and Bojilova,
1998; Konar and Cohen, 1997).
Summary and Discussion:
Voluntary Programs and Voluntary Participation
Voluntary environmental programs (VEPs) are the recipients of growing
attention from both governmental and non-governmental organizations as well as
academic scholars in the U.S. As such, many VEPs have been developed and
implemented by government agencies (e.g., EPA and DOE) and non-governmental
organizations, including industrial associations (e.g., CMA and NSAA), independent
certifying organizations (e.g., ISO), and individual firms. They are designed to
promote corporate voluntary environmental actions that go beyond regulatory
mandates. Participants in VEPs are not required to meet environmental goals or adopt
51


specific technologies, but allowed to meet program objectives through flexible means
and voluntary efforts.
Despite the popularity of VEPs, it is unclear why firms participate in such
programs. Two major perspectives are debated: the environmental economics
perspective (EEP), which regards voluntary participation as a channel through which
to gain institutional legitimacy and weaken regulatory standards that are either
existing or not promulgated; and the proactive environmental management
perspective (PEMP), which views voluntary participation as a strategic tool by which
firms promote their environmental image and obtain competitive market advantages.
Each perspective, limited to its own school of thought and assumptions, fails to
provide a complete picture of why corporate voluntary participation occurs. The EEP,
which assumes perfectly competitive markets where firms performance and products
are homogenous, does not capture the potential opportunities and benefits of
voluntary environmental protection efforts that are otherwise considered mere
economic costs. PEMP, on the other hand, overlooks the failure of firms with fewer
resources and lower capability, whose voluntary environmental efforts do not lead to
positive competitive results. It is considered important, then, to adopt a theoretical
model by which both perspectives are explained and examined.
52


CHAPTER 3
THEORETICAL MODELS
Introduction
As the number of firms participating in voluntary environmental programs (VEP)
has increased, more scholars have expressed an interest in understanding why firms
would be willing to go beyond regulatory requirements to protect the environment.
The phenomenon of VEP participation has been particularly peculiar to classical
micro-economists who understand a firms behavior in the function of market
equilibrium of perfect market competition. Firms decisions to participate in VEPs
appears irrational and inefficient to them since voluntary environmental efforts,
at least from their point of view, merely add environmental costs to the firms and
subsequently serve to increase production costs and weaken their market
competitiveness. In the perfect competitive model, firms are assumed to have equal
access to resources, technology, and information and there is no superior economic
performance that leads to above normal profit (Barney and Ouchi, 1986). Voluntary
environmental efforts and their necessary burdens do not bring firms any fiscal
benefit or competitive advantage.
53


There are three theoretical perspectives that help explain firms VEP
participation: resource-based theory, institutional theory, and diffusion theory.
Different from the micro-economic theoretical perspective that views voluntary
participation in terms of added economic costs, these theories regard voluntary action
as a strategic tool that satisfies corporate interests. They are used to understand
different variables and conditions that encourage firms to participate in VEPs. While
resource-based theory and institutional theory are used to reveal different strategic
modes of VEP participation, diffusion theory is adopted to disaggregate discrete
processes found in early and late VEP participation or adoption. Resource-based
theory focuses on internal resources of organizations and links them with market
competitiveness. It views VEI as a strategic resource by which firms generate profits
and become more competitive in a market environment. On the other hand,
institutional theory pays particular attention to institutional environment as a
determining factor for organizational behavior, viewing social legitimacy as a major
impetus for firms to participate in VEP. Lastly, diffusion theory is concerned with the
diffusion and institutionalization of VEP participation and examines the underlying
sources of VEP adoption over time.
Combining resource-based theory with institutional theory is important to
understand the logic by which firms decide to participate in VEPs. The integration
helps explain how factors from the internal and external environment influence
corporate decisions for two major reasons. The first is related to the different
54


assumptions upon which the two theories are built, in this case, managerial decisions.
Whereas resource-based theory highlights rational choices of corporate managers
predicated on economic optimality (market competitiveness), institutional theory
looks beyond the narrow realm of economic interests and posits that managerial
decisions are to a large extent influenced by the social framework that defines
traditions, rules, and standards.
It is important to examine both perspectives to appreciate the firms decisions to
allocate their scare resources. Emphasizing only one theoretical perspective (say,
resource-based theory) can severely limit the explanatory power about how firms
actually make, and fail to make rational resource choices in pursuit of economic
rents (Oliver, 1997: 698). The second is related to determinants that influence a
firms VEP decisions. A firms choices are constrained by not only its organizational
needs but also by external environmental pressures. The one strong indication is that
local communities and external stakeholders become involved in a firms decision
process in terms of leading firms to make environmentally friendly business practices
(Hart, 1995). Resource-based theory emphasizing strategic factors of firm decisions
does not adequately address firm environmental practices led by the role of social
groups. Hoffman (2001) supports the integration of both theories, arguing that to
properly capture this [VEI] phenomenon, the analytic lens must look beyond the
individual organization and consider the social, political, and market context in which
it exists (p. xviii).
55


In addition, diffusion theory is important since it can describe how VEP
participation takes place in different times. Compared to the other two theories that
pay attention to organizational/environment factors, diffusion theory focuses on
timing of organizational decisions and differentiates factors that influence VEI
decisions in different time dimensions. It provides the dynamic processes of how
firms decisions are made and what factors influence the timing of their decisions
over time.
This chapter introduces the general description of resource-based theory and
links it to motivations for VEP participation. Next, institutional theory is described
and examined to discover factors that influence a firms decision to participate in
VEP. Finally, diffusion theory is introduced and adopted to investigate changes in
underlying temporal sources that lead to early or late VEP adoption.
Resource-based Theory
What makes firms competitive in markets over longer periods of time has been a
long sustained research question in strategic management. To explain the sources of
corporate performance differences, two major theoretical views have been debated:
industrial organization (10) and resource-based (RB) views. The 10 theoretical
tradition, which was in the past the dominant view in competitive strategy literature,
emphasizes the firms environment, in which industrial structure is a central
determinant of firm performance (Porter, 1980, 1985). It argues that structural
56


characteristics of an industry such as buyer and supplier power, intensity of
competition, and product market structure are critical to determine the intensity of
industry competition and profitability (Porter, 1980; Oliver, 1997). More recently,
resource-based theory (RBT), which has come into being partially in reaction to the
10 approach, pays attention to internal resources of a firm to explain variation in
corporate performance in markets (Barney, 1991). It is founded upon assumptions
that describe resource heterogeneity and immobility. These assumptions are in stark
contrast to the 10 assumptions that describe identical resources and great mobility of
the resources (resources can be purchased and sold in factor markets) among firms
within an industry (Barney, 1991).
RBT with its theoretical roots in the early ideas of Schumpter (1934) and Penrose
(1959), articulates the relationship among the firms resources and competitive
advantages (Barney, 1991; Hart, 1995). It argues that distinctive firm resources can
lead to a sustained competitive advantage. Firm resources are assets, capabilities,
organizational processes, firm attributes, information, knowledge, etc. that a firm
can use and implement to improve its efficiency and effectiveness (Barney, 1991:
101). They can be categorized by tangible and intangible resources. Tangible
resources include physical assets used in a firm, such as physical technology, plant,
equipment, geographical location, and raw material stocks (Amit and Schoemaker, 2
2 Hofer and Schendel (1978: 25) defined competitive advantage as the unique position an organization
develops vis-a-vis its competitors through its patterns of resources deployment.
57


1993; Barney, 1991). Intangible resources are non-physical assets that include human
capital resources (e.g., training, experience, intelligence, and relationships) and
organizational capital resources (e.g., reporting structure, coordinating systems as
well as reputation and brand name recognition) (Barney, 1991; Collins and
Montgomery, 1995; Grant, 1991; Wemerfelt, 1984). Brunmagim (1994) put these
resources in hierarchical order, depending on the levels of corporate activities. While
the lower levels of resources involve basic production and marketing processes, the
higher levels of resources are largely associated with administrative capabilities (e.g.,
institutional procedures, reward systems, leadership) that support corporate learning
and facilitate the strategic vision and commitment.
Not all firm resources, however, have the potential of sustained competitive
advantage. Only the resources with four distinctive attributes can generate this
potential. The attributes include valuable, rare, imperfectly imitable, and non-
substitutable (Barney, 1991; Reed and DeFilippi, 1990). Resources are valuable
when a firm exploits them to generate opportunities or neutralize threats in a way that
improves its efficiency and effectiveness (Barney, 1991: 106). Valuable firm
resources do not produce competitive advantages when large numbers of firms own
the same particular valuable resources and exploit them in the same way (Ibid.). They
have the potential of generating a sustained competitive advantage only when they are
sufficiently rare to share among firms. Firms with valuable and rare resources, which
are often described as innovators and first movers, may be at great competitive
58


advantage, but only for a short period time if their competitors who do not own the
resources can perfectly imitate the resources. For these resources to be imperfectly
imitable, three conditions that basically describe idiosyncrasy of the resources are to
be met: unique historical conditions, causal ambiguity, and social complexity (Barney,
1991; Dierrickx and Cool, 1989; Reed and DeFilippi, 1990).
The degree of idiosyncrasy is dependent upon a combination of the following
conditions (Barney, 1991; Brumagim, 1994); the greater idiosyncratic the resources
are, the harder they are to imitate and thereby a competitive advantage can be
obtained and sustained. The first condition is unique historical conditions, meaning
that the resources firms obtain are space and time-dependent. The resources are
related to unique historical paths that a firm went through (e.g., scientific
breakthrough, individual human capital) (Barney, 1991; Burgelman and Maidique,
1988; Winter, 1988). The second condition is causal ambiguity. It exists when the
source of a firms sustained competitive advantage is poorly understood. There is no
clear linkage between firms resources and their competitive advantage (Barney,
1991: 109). Firms who do not possess these resources do not have clear
understanding of the processes they must follow if they are to imitate the necessary
resources. The final condition is related to social complexity. It is understood that
sustainable competitive advantage is basically part of complex social phenomena,
beyond the realm of firms control. Examples include a firms culture (Barney, 1986)
and a firms reputation (Porter, 1981; Klein, Crawford and Alchian, 1978).
59


The final attribute for a firm resource to be a source of sustained competitive
advantage is non-substitutability. Even with resources valuable, rare, and imitable,
firms may not generate sustained competitive advantages if there are strategically
equivalent and substitutable resources available to firms without these resources
(Barney, 1991). Firms can substitute the strategic resources in two ways, either by
adopting similar resources or by utilizing very different resources.
Resource-based Theory and Green Lights (GL) Participation
Environmental protection that was once regarded as an internal cost of business
operation has under the RBT paradigm recently become considered as a strategic tool
by which firms can enhance their market performance. While underlying the
importance of corporate environmental competence, Hart (1995: 991) argues that
strategy and competitive advantage in the coming years will be rooted in capabilities
that facilitate environmentally sustainable economic activity. He articulates his
contention by incorporating the natural environment and its relationship with firms
into RBT. He suggests three interconnected strategies that create distinctive resources
(capabilities) and thus lead to a sustained competitive advantage: pollution prevention,
product stewardship, and sustainable development.
Pollution prevention as a way to abate pollution is championed since it does not
entail the use of relatively expensive pollution control equipment; for example, it
reduces or even prevents dangerous emissions and effluents through continuous
60


improvement in the manufacturing process (e.g., house-keeping, material substitution,
recycling, process innovation) (Hart, 1995; Caimcross, 1991). Product stewardship is
designed to minimize the life-cycle environmental costs of product systems (Hart,
1995: 993) that incorporates the stakeholders perspective into product design and
manufacturing processes. By doing this, firms can reduce environmental liabilities
and costs of products. Finally, sustainable development, while highlighting
environmental problems at the global level, stresses the importance of the firms
strategies and investment to reduce material and energy consumption in economic
activity and makes the activity continue for a long time. The pursuit of a sustainable
development strategy can reduce the negative effect of economic activity on
environmental degradation at the global level; the consumption of raw resources in
one set of countries (developed countries) implies depletion of environmental
resources in another set of countries (developing countries). The three strategies are
interconnected in that they indicate an evolutionary path of sustainable economic
development (Hart, 1995).
The GL voluntary program provides firms with opportunities for practicing a
pollution prevention strategy. The program participants can significantly reduce their
emissions (in particular, greenhouse gases) while saving significant energy costs
(eco-efficiency) by installing proven energy efficient lighting systems in their
facilities. The significant reduction of greenhouse gas emissions can also facilitate a
firms green reputation (given that industrial and commercial lighting accounts for
61


13 percent of US electricity demand, the major source of greenhouse gas emissions
[US Department of Energy, 1997]). Eco-efficiency and green reputation are the
major by-products that firms can obtain from GL participation and that they use to
secure sustained competitive advantage in at least two ways. First, GL participants
can improve their environmental performance (e.g., emission reduction via energy
saving) and subsequently reduce their operation and production costs. Lower
emission implies efficient utilization of raw materials, which results in lesser costs for
materials (Porter and Linde, 1995). As of 1996, GL participants were reported to have
saved $440 million in energy costs and, on average, accomplished 40 percent
reduction in energy use for lighting (Howarth et al., 2000:479). The reduced energy
use can also enable firms to expand production capacity. Larger firms can accomplish
greater cost savings by participating in the GL program because of their economy of
scales.
Second, firms can bolster a green image by participating in the GL program.
EPA has continuously made public pronouncements about GL voluntary participants
efforts to protect the environment through a variety of communication channels, such
as media, newsletters, and awards. The green image established by GL participation
offers a significant benefit that could lead to a sustained competitive advantage. The
first benefit is that it makes firms more responsive to green market pressure (i.e.,
the pressure from consumers having a preference for environmentally friendly
products) (Darnell et al., 2000). In the U.S., the green market segment is on the
62


rise; more than 75 percent of US consumers listed a corporate green image as an
important criterion for their purchasing decision (Kleiner, 1991) and nearly a third of
consumers have purchased a product known for being environmentally friendly
(Roper organization, 1990).
The image of green is particularly crucial to larger firms and firms with
proximate contact with final consumers (such as finished [consumer] good producers)
because they are more visible to consumers and susceptible to green publicity that
may provide greater potential benefits in terms of product sales (Arora and Cason,
1996; Khanna and Damon, 1999). Findings from several studies show that larger
firms are likely to participate in 33/50 (Arora and Cason, 1995), Green Lights
(Videras and Alberini, 2000), WasteWise (Videras and Alberini, 2000), Climate
Challenge (Welch et al., 2000), Responsible Care of the chemical manufacturing
industry (King and Lenox, 2000), ISO 14001 (Potoski and Prakash, 2005), and
Sustainable Slopes (established by the U.S National Ski Areas Association in
partnership with federal and state government agencies) (Rivera and deLeon, 2004).
In terms of firms proximate contact with consumers, several empirical studies find
that firms that have close contact with final consumers are more likely to participate
in 33/50 (Arora and Cason, 1996; Khanna and Damon, 1999) and WasteWise
(Videras and Alberini, 2000) and to formulate an environmental plan (Henriques and
Sadorsky, 1996). In sum, larger firms and firms with closer consumer contact are
often highly visible to consumers and can therefore attain greater reputational benefits.
63


It is known that a green reputation can generate a comparative differential
advantage by which firms can enjoy price premiums in selling their products (Russo
and Fout, 1997; Rivera, 2002; Williams et al., 1993). Many firms, including ARCO
and Proctor & Gamble, credit a part of their increase in sales to environmental
reputation (Russo and Fout, 1997: 540). Such reputations once established are not
easy to imitate over short time periods (Hart, 1995). This leads to the following
hypotheses:
Hp A larger firm is more likely to participate in a GL.program (Arora and Cason,
1995; King and Lenox, 2000; Potoski and Prakash, Rivera and deLeon, 2004;
2005Videras and Alberini, 2000; Welch et al., 2000).
H2: A firm with closer contact with final consumers is more likely to participate in a
GL program (Arora and Cason, 1996; Henriques and Sadorsky, 1996; Khanna
and Damon, 1999; Videras and Alberini, 2000).
A firms pollution prevention strategy requires voluntary involvement of a large
number of people, especially line employees, in continuous improvement efforts
(Hart, 1995: 1000). Unlike an end-of-pipe method that relies on relatively
expensive pollution control devices (e.g., smoke-stack scrubbers), a pollution
prevention strategy depends on tacit, causally ambiguous resources (e.g., team work,
knowledge, network) accumulated through employee involvement (Ibid.). Building
the necessary resources requires time and continuous investments so that pollution
prevention practices can be properly developed, managed, and maintained. GL
64


pollution prevention practices involve a number of employees who work in teams and
share their expertise. The required employees range from lighting designers, project
managers, and waste management professionals to a financial specialist, public
relations officers, coordinators, and senior managers (EPA, 1993). Firms that
previously accumulated experience and knowledge (e.g., environmental management
system implementation) are certainly at an advantage in terms of implementing GLs
pollution prevention strategy (Christmann, 2000; Teece, 1986). The prior experience
and knowledge can help accelerate GL implementation, not to mention saving its
costs.
On other hand, firms that have emphasized capital equipment development are at
a great disadvantage because a pollution prevention strategy is people-intensive;
higher capital investment prohibits strategic adjustment and flexibility (Darnell, 2003).
Several previous studies find that firms with less capital investment are more likely to
participate in ISO 14001 (Darnell, 2003), and 33/50 (Khanna and Damon, 1999).
Finally, the continuous and intensive investment required to implement a GL
pollution prevention strategy can discourage firms with low financial performance.
They can perceive the GL strategy as a risk rather than an opportunity for sustained
competitiveness. Conversely, firms with better financial performance (in terms of
financial profitability) are more likely to perceive proactive voluntary environmental
actions as economic opportunities and to participate in 33/50 (Arora and Cason,
1995). This leads to the following two research hypotheses:
65


Hy A firm with less capital investment intensity is more likely to participate in a GL
program (Darnell, 2003; Khanna and Damon, 1999).
Hp A firm with better financial performance is more likely to participate in a GL
program (Arora and Cason, 1995).
Institutional Theory
In contrast to RBT that focuses on the characteristics of organizations internal
resources to explain organizational behavior and practices, institutional theory (IT)
emphasizes the institutional environment within which organizational decisions are
embedded. There is considerable variation in IT as it encompasses a number of social
science disciplines such as sociology, economics, and politics (DiMaggio and Powell,
1991:1). Among IT in disciplinary contexts, this dissertation focuses on IT in the
discipline of sociology (specifically, organizational analysis).
Within the sociological traditions, IT has changed its focus and approach over
time. Older versions of IT focused on the social process by which organizations are
instilled with value or what is accepted as a shared social order (Berger and
Luckmann, 1967; Selznick, 1957). This social order is fundamentally created through
social interaction, or repeated social actions (Berger and Luckmann, 1967). More
recent forms of IT identified the pattern and distinctive elements of institutional
processes (DiMaggio and Powell, 1983; Meyer and Rowan, 1977; Zucker, 1977,
1988), different influences of the processes on structural characteristics of
66


organizations (Meyer, Scott and Deal, 1987; Meyer, Scott and Strang, 1987; Scott,
1987; Scott and Meyer, 1987) and organizational change (Hinings and Greenwood;
Tobert and Zucker, 1983).
IT theorists hold that organizational decisions and choices are made within social
frameworks that constitutes norms, values, and traditions. The decisions are based not
only economic interests but also social justification and legitimacy (Oliver, 1997;
Zukin and DiMaggio, 1990). Whether they are socially acceptable and appropriate is
more important than whether they are economically optimal (DiMaggio and Powell,
1991; Granovetter, 1985; Scott, 1995). Organizations are assumed to be susceptible to
institutionalized values and expectations and their stability and survival is dependent
on the extent of conformity. This organizational non-choice behavior (as opposed to
active choice behavior) is not irrelevant to individual choice and decision-making in
political life: political actors associate certain actions with certain situations by rules
of appropriateness.. ..defined by the political and social system and transmitted
through socialization (March and Olsen, 1984: 741, 1989). DiMaggio and Powell
(1991: 66) summarize these organizational behaviors; they say that organizations
compete not just for resources and customers, but for political power and
institutional legitimacy, for social as well as economic fitness.
Recently, institutional theorists began to theorize more explicitly about the
diversity of institutional sources and processes that cause organizations to change
their behaviors and structures in a way that conforms to what is socially taken for
67
I


granted so-called institutional isomorphism (Meyer and Rowan, 1977; DiMaggio
and Powell, 1991). More emphasis on the institutional processes was closely
associated with the existence of the variety of institutional forms prevalent in modem
society (Meyer and Rowan, 1977; Scott, 1987). DiMaggio and Powell (1991) identify
three pressures that lead organizations to act and look homogenous and isomorphic:
coercive pressures, normative pressures, and mimetic pressures. Coercive isomorphic
pressures arise from either legal mandates or informal mles and sanctions.
Government regulatory mandates that specify legal standards and requirements are
one of a number of major sources that pressure organizations to change their
behaviors. The coercive pressures can also occur outside of governments upon which
organizations depend and within which they function (Ibid., p. 67). The pressures can
be exerted with forms other than legal mandate, such as force, persuasion, and
invitations other than legal mandate. Firms require their subsidiaries and suppliers to
adopt standardized corporate practices and procedures (e.g., reporting mechanisms,
performance evaluations, accounting practices, environmental management systems)
(DiMaggio and Powell, 1991; Meyer and Rowan, 1977).
Normative pressures are the second source of institutional isomorphism,
primarily stemming from educational processes and professional networks (DiMaggio
and Powell, 1991). Universities and other professional academic institutions train
organizational managers and staff to follow professional values and norms by
influencing their cognitive bases. Professional networks, such as industrial
68


associations, are the other source of pressure. They diffuse institutionalized rules and
practices to their member organizations and thus shape their behaviors and activities.
The third form is mimetic isomorphic pressure that grows out of organizational
ambiguity. When organizations have unclear goals and lack of understanding about
possible outcomes of actions and future environmental state, they are forced to
imitate actions that other organizations have successfully taken in previous periods
(March and Olsen, 1976).
Institutional Theory and GL Participation
Firms do not exist in an institutional vacuum but exist within open systems in
which they interact with the external environment (Katz, D. and R. Kahn, 1978).
Their activities and decisions are influenced by interaction and control on two levels
of external environment, technical environment and institutional environment.
Technical environments offer the most basic level of interaction as firms acquire
resources (e.g., raw materials, labor, energy, services) from the external environment
or exchange them through markets (Hoffman, 2001; Scott and Meyer, 1992). In this
way, they maintain or reward their business. At the same time, they rely on the
institutional environment in which their actions and choices are defined and arranged.
They need to respond to what society defines as valid and appropriate and thus obtain
legitimacy for what they are doing. In this vein, it is important for firms to make
69


decisions not only based on optimality of economic resource allocation but also on
what is defined as socially justified.
Institutional actors have become influential in terms of shaping the way firms do
their business. The most prominent and powerful external institutional actors are
governments. Governments have authority to establish and implement laws, thus
influencing or controlling various aspects of business operations (e.g., marketing and
operations). Through legal mechanisms, governments can bind firms to certain
practices and procedures or bar them from others. As government regulations have
become intricately related to and influence firms competitive positions and
profitability in markets, firms have been forced to change their strategies and
positions in a way that makes them viable and competitive in markets (Marcus,
Kaufman and Beam, 1987; Shaffer, 1995; Yoffie, 1987). In addition to governmental
institutions, social actors have played increasingly visible roles in influencing
corporate governance. They influence business either indirectly through the
government (e.g., lawsuits or political lobbying) or directly through actions (e.g., civil
legal actions, demonstrations, information campaigns) supported by their membership.
Their actions are based on social norms and rules commonly accepted and established
within their institutions.
Environmental protection is perhaps the most prominent area where the influence
of institutional actors on corporate activities is clearly represented. Since the early
1970s, the U.S. government has increasingly relied on regulations to formulate and
70


structure corporate environmental performance in terms of pollution control. Legal
threats and liabilities are major mechanisms by which non-compliance and violations
are discouraged and, occasionally, sanctioned; potential penalties and liabilities are
very expensive under environmental regulations such as the Superfund Act of 1986
and the CAA Amendment of 1990 (Khanna and Damon, 1999).
Non-governmental organizations and other grassroots groups have rapidly grown
in terms of membership and organizing activities since the 1960s. According to
Gallup Poll Report (2003), about 14 percent of American public report that they
participated in the environmental movement, compared to about 5 percent in previous
years. The expansion of membership manifests the political power of environmental
group interests. Firms have become more visible and vulnerable to the publics
perception, particularly after the enactment of the Superfund Amendment and
Reauthorization Act (SARA) in 1986. SARA required firms to disclose their emission
levels of listed toxic or hazardous chemicals through the Toxic Release Inventory
(TRI). It became important for firms to develop strategies that build transparent and
responsive relationships with institutional actors to accomplish sustainable
advantages (Oliver, 1997).
The GL voluntary program was initially envisioned to be a strategic channel
through which firms could respond to institutional pressures and justify their
economic activities. As described earlier, there are three major institutional pressures
that force firms to participate in GL programs: regulatory, social, and political
71


pressures. Firms with poor environmental track records are under greater regulatory
scrutiny and pressure and are more likely to participate in GL program. Current
studies provide empirical evidence that firms are more likely to participate in
voluntary programs when they operate under greater regulatory scrutiny and pressure
(Arora and Cason, 1996, Khanna and Damon, 1999; King and Lenox, 2000; Potoski
and Prakash, 2005; Segerson and Miceli, 1998). In particular, firms that emit a larger
volume of toxic pollutants and expose them to a higher risk of potential liabilities for
human health and environmental damages may have a stronger incentive to adopt
voluntary measures than those that have less pollution problems. They are more likely
to view the GL voluntary initiatives as opportunities for reducing the current levels of
toxic pollutants and wastes as well as for lowering the risk of future environmental
liabilities (Khanna and Damon, 1999; Khanna, 2001). In addition, newly created
environmental images obtained by announcing investment in pollution prevention
through the GL program can function as a signal to governments that firms are
exerting serious efforts to address environmental risks, and thus they can deflect or
reduce the intensity of regulatory oversight or even transfer it to other firms
(Gunningham et al., 2003; Maxwell and Decker, 1998; Welch et al., 2000). Therefore,
we hypothesize that:
H$: A firm with poor environmental track records is more likely to participate in a
GL program (Arora and Cason, 1996, Khanna and Damon, 1999; King and
Lenox, 2000; Potoski and Prakash, 2005; Segerson and Miceli, 1998).
72


Similarly, firms in pollution-producing industries are likely to participate in the
GL voluntary programs. The major reason for voluntary participation is that firms
may use the GL program as a vehicle to promote image of the industry as a whole and
influence the existing regulatory environment for them. This may be largely because
adverse government perceptions about the industries may lead to stringent regulations,
which ultimately incur greater costs of compliance for the firms. To date, few have
attributed VEP participation to firms industrial regulatory pressure, except one
similar study (Khanna and Anton, 2001); they found that the industry regulatory
pressure (measured by the ratio of industry wide pollution abatement costs to sales)
was significant in terms of estimating a firms adoption of a more comprehensive
environmental management system. Although King and Lenox (2001) found that
firms in more pollution-producing industries (measured by the natural log of the sum
of facility emissions per employee for all facilities) have higher likelihood of ISO
14001 adoption, they suggested that the reason for the adoption is less from
regulatory pressure than from the consumer pressure. King and Lenox (2001)
indicated that voluntary adoption is used to earn goodwill and trust from consumers
and thus help firms to take advantage of attracting consumers over rivals in the
industry. This leads to the following hypothesis:
//(j.- A firm in an industry with a poor environmental track record is more likely to
participate in a GL program (Khanna and Anton, 2001).
73


In addition, social pressure can influence the decision to undertake GL.
Environmental groups have increasingly been influential in terms of political
mobilization for greater regulatory stringency, either existing or forthcoming. Firms
that operate in regions where greater community environmentalism exists are more
likely to participate in voluntary programs (Arora and Cason, 1996; Henrique and
Sadorsky, 1996; Khanna and Damon, 1999; Rivera and deLeon, 2004; Welch et al.,
2000). Firms adopt VEI as a way to deter environmental pressures from
environmental groups and other related community groups (Henriques and Sadorsky,
1996; Maxwell et al., 2000; Welch et al., 2000), which suggests the following
hypothesis:
H7: A firm with greater community environmental pressure is more likely to
participate in a GL program (Arora and Cason, 1996; Henrique and Sadorsky,
1996; Khanna and Damon, 1999; Rivera and deLeon, 2004; Welch et al., 2000).
Finally, a state governments emphasis on environmental protection may account
for the adoption of a GL voluntary program. Firms in states favoring environmental
protection are more likely to have a greater motivation to participate in a GL program.
This tendency is because these firms are more vulnerable to stringent environmental
regulations than those in states with less emphasis on environmental protection. By
undertaking the pollution prevention practices of a GL program, they could hope to
74


relieve existing regulatory pressures as well as make themselves better prepared for
forthcoming regulations. This leads to the following hypothesis:
Hs: A firm in a state with greater emphasis on environmental protection is more likely
to participate in a GL program (Potoski and Prakash, 2005).
Innovation Diffusion Theory
Innovation diffusion3 theory is concerned with why some organizations adopt
innovations earlier than others. In recent decades, many scholars have adopted
innovation diffusion theory to understand the processes by which innovation
adoptions occur. They have employed various research disciplines such as
psychology, engineering and communications, sociology, and marketing to examine
different types of innovations: agricultural innovations (Ryan and Gross, 1943;
Rahim, 1961), educational innovation (Miles, 1964; Havelock, 1969; Mintrom, 1997),
electricity regulation (Ka and Teske, 2002), medical innovation (Coleman et al., 1957,
1966; Scott, 1990), tax innovation (Berry and Berry, 1992, 1994), and technology
innovation (deLeon, 1979, 1980, 1984; Eveland and Tomatzky, 1990; Kelly and
Kranzberg, 1978).
There are two types of theoretical perspectives that address questions of
innovation diffusion: the rational efficiency perspective (REP) (Rogers, 1995) and the
3 Rogers (1995) defined an innovation as an idea, practice, or object that is perceived as new by an
individual or other unit of adoption (p. 11) and diffusion as "the process by which an innovation is
communicated through certain channels over time among the members of a social system (p. 5).
75


bandwagon perspective (BP) (Abrahamson, 1991; Abrahamson and Rosenkopf, 1993).
Both perspectives stress the importance of examining discrete processes (or time
order) to study innovations. Incorporating a time dimension (e.g., earliness and
lateness) into analytic framework helps disaggregate organizational behaviors of
innovation adoption. DeLeon (1979, 1980, 1984) strongly advocated the process
(stage) model, while criticizing the research orientation toward innovations that did
not consider discrete processes. He (1984: 485) claimed that different actors with
different objectives and criteria play different roles during the innovation/diffusion
drama. Organizational behaviors that are associated with early innovation adoptions
are distinguished from those with late innovation adoptions (Berry and Berry, 1999;
Rogers, 1995; Abrahamson and Rosenkopf, 1993).
Even with the same interest in the processes of innovation, REP and BP have
different foci in terms of explaining organizational adoptions of innovations. REP
focuses on technical efficiency or returns upon which organizational decisions are
based (Rogers, 1995; Reinganum, 1981; Katz and Sapiro, 1985). Rogers (1995)
innovation diffusion theory falls into this category. In his famous diffusion curve (i.e.,
logistic curve), Rogers described the general processes of innovation adoption. After
few organizations adopt innovation in the early (earliest) stage, innovation is passed
to other organizations, that is, diffusion occurs. Early innovation adopters are few
because innovation adoption, more often than not, demands a sizable capital
investment and involves uncertainty in terms of the investment return in the future. It
76


is risky for organizations to adopt innovations that have not previously been tested
and implemented unless they have sufficient resources to offset their possible losses.
Their financial capability must be able to absorb the possible economic losses
occurring from the adoption; furthermore, they have the knowledge and experience to
understand and apply complex practices and ideas involved in innovations, which
enhances the chance of success of the adoption (Rogers, 1995: 264). After the
introductory stage of innovation diffusion, the next stage is the take-off, which
growing numbers of organizations are convinced of and adopt the innovation. As
innovative ideas and practices become mature and the market becomes relatively
saturated, the number of adoptions slows down (Ibid.).
One of the most serious shortcomings of REP diffusion research, as several REP
researchers (Rogers and Shoemaker, 1971; Downs and Mohr, 1976; Rogers, 1995)
recognized, is the pro-innovation bias. Rogers (1995: 100) recognized the bias that
leads diffusion researchers .. .to underemphasize the rejection or discontinuance of
innovations, to overlook re-invention, to fail to study antidiffusion programs designed
to prevent the diffusion of bad innovations.. ..the net result.. .is a failure to learn
certain very important aspects of diffusion.
As a way to deal with the problem of REPs pro-innovational bias, the BP pays
attention to the process of diffusion in innovation and unpacks the discrete process of
innovation adoptions (Baron, Dobbin, and Jennings, 1986; Tolbert and Zucker, 1983).
Criticizing the pro-innovational bias of REP for not addressing the diffusion of
77


inefficient innovations, Abrahamson (1991: 586) argued that processes which
prompt the adoption of efficient innovations may coexist with processes that prompt
the adoption of inefficient ones. In accordance with the claim, BP disaggregates the
organizational motivations in different diffusion windows and argues that the
technical needs and efficiency that drive organizations to adopt innovation in early
diffusion windows can lend their influence to institutional pressures and legitimacy in
late diffusion windows. The transition occurs as the number of innovation adoptions
increases over time; innovation adoptions become institutionalized and thus a source
of pressure for non-adopters to accept innovations during late diffusion windows
(Abrahamson and Rosenkopf, 1993).
Tolbert and Zuckers (1983) well-known study on civil service reform in U.S.
municipalities provided an empirical example of the BP. They found that technical
and efficient reasons that drive early adopters are transited into legitimacy reasons at
late diffusion stages, adopters fear being perceived to be different from others. They
suggested that the institutionalization of the reform does not leave non-adopters any
choice other than to follow. Similarly, in the studies that examine a group of
hospitals adoption in matrix management (departmentalized structures) and in total
quality management (TQM), Bums and Wholey (1993) and Westphal et al (1997)
found that while early adoption is related to technical reasons (such as improving
management practices and coordination), late adoption is associated with sociological
reasons related to normative and institutional pressures.
78


Innovation Diffusion Theory and GL Participation
Firms have chosen to adopt GL pollution prevention practices in different time
dimensions; while some firms participate early in a GL program, others are later
converts. Innovation diffusion theory implies that firms are more likely to participate
early in a GL program when they expect to benefit most clearly and surely from it.
One of the potential and immediate benefits to the early participants is attention from
media, interest groups, and government agencies, which gives them a reputation for
green leadership. Among firms, larger firms and firms with close consumer
relations could be the major potential beneficiaries because of their visibility to
consumers; their early GL participation could attract more attention than those
without these organizational features, making it easier for them to promote their
corporate image as green. This newly captured and created green image could be
important in terms of corporate performance in markets (Hart, 1995; Russo and Fout,
1997; Rivera, 2002). The potential benefit could be great, considering that the
green market in the U.S. has dramatically increased (Kleiner, 1991) and the market
itself is not fully exploited (Hart, 1995). This leads to the following hypotheses:
Hg: A larger firm is more likely to be an early participant in a GL (Bums and Wholey,
1993; Tolbert and Zucker, 1983; Westphal et al., 1997).
Hiq: A firm with closer contact with final consumers is more likely to be an early
participant in a GL program (Bums and Wholey, 1993; Tolbert and Zucker,
1983; Westphal et al., 1997).
79


Despite these potential economic returns (some of which were widely advertised
by EPA), many firms choose not to make an early investment in GL pollution
prevention practices. A primary reason can be related to investment costs and the
commitment required to make the GL practices successful and profitable. As
described earlier, pollution prevention practices demand intensive human resources
rather than intensive capital investments (Hart, 1995). They involve continuous
investment and considerable time through which employees can be trained and obtain
relevant experiences and knowledge. This long-term and significant investment can
be risky to firms that do not have financial capacity (e.g., scare resources) to offset
the possible losses from the investment. Early adopters are particularly risk-prone,
since in most cases they do not have enough information available to assess their
decisions to investment; EPA technical support of a GL program that ranges from
surveying the lighting systems of facilities to identifying financing resources can help
its participants establish the GL lighting project but their assessment may not be
enough to ensure long-term potential benefits from the project. In this regard, firms
with less financial capacity are likely to perceive GL investment as risky and thus
reluctant to undertake GL pollution prevention practices in early diffusion windows.
King and Lenox (2001) study support this argument, finding that firms with greater
resources and profits are more likely to be early adopters of ISO 14001.
In addition to financial capacity, prior corporate knowledge and experiences with
pollution prevention practices can influence a risk perception of GL adoption. They
80


can lower the risk perception since they can help streamline the GL implementation
process and thereby reduce its implementation costs (Damall, 2003; Hart, 1995;
Lawrence and Morell, 1995). Therefore, we propose the following hypotheses:
Hu: A firm, with less capital investment intensity is more likely to be early
participants in a GL program (Bums and Wholey, 1993; Damall, 2003; Tolbert
and Zucker, 1983; Westphal et al., 1997).
Hi2' A firm with better financial performance is more likely to be an early
participant in a GL program (Bums and Wholey, 1993; Damall, 2003; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et ah, 1997).
In terms of the environmental context in which firms operate, firms are more
likely to adopt a GL pollution prevention practices in late diffusion windows when
they feel vulnerable to institutional pressures and it becomes important to secure
legitimacy to justify their economic activities (Abrahamson and Rosenkopf, 1993;
Bums and Wholey, 1993; Damall, 2003; Tolbert and Zucker, 1983; Westphal et ah,
1997). The failure to adopt a program (like GL) that many other firms have
voluntarily adopted and implemented may be looked upon as peculiar and produce
the image of environmentally unfriendliness to some external stakeholders.
Institutional embarrassment may be inevitable (Abrahamson, 1991; Abrahamson and
Rosenkopf, 1993). This is particularly true for firms that operate under greater
institutional scrutiny or pressures (e.g., regulatory and environmental pressures); the
major causes include poor environmental records either in their facilities or industries,
1
t
81
i


greater community environmentalism, and government environmental commitment.
One quick way to prevent an institutional onus is to copy what many other firms do
(Kraatz, 1998). In contradiction to the earlier statement, firms that have faced higher
institutional pressure are likely to have a greater incentive to participate in ISO 14001
voluntary program at an early stage (King and Lenox, 2001; Damall, 2002). The early
announcement of voluntary participation can capture the attention from media by
which firms can placate an environmental concern from community and government
agencies. For these reasons, we hypothesize that:
H13: A firm with poor environmental track records is more likely to be a late
participant in a GL program (Bums and Wholey, 1993; Damall, 2002; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
Hip A firm in an industry with a poor environmental track is more likely to be a late
participant in a GL program (Bums and Wholey, 1993; Damall, 2002; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
His-' The greater community environmental pressure a firm is more likely to be a late
participant in a GL program (Bums and Wholey, 1993; Damall, 2002; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
Hk,>' A firm in a state with the greater environmental policy emphasis is more likely to
be a late participant in a GL program (Bums and Wholey, 1993; Damall, 2002;
King and Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
82


CHAPTER 4
RESEARCH DESIGN
Introduction
This chapter describes the research design used to examine the research
hypotheses, in particular, the sample, variable measures, and empirical models. We
first summarize the research hypotheses proposed in the previous chapter. Two
groups of hypotheses determine contexts and conditions that influence GL
participation. The first groups examine both organizational and institutional contexts
of firms to estimate GL participation. The second group evaluates GL participation in
early and late diffusion windows. Second, this chapter explains the sample and the
rationale for selecting the sample. Third, it defines and articulates the dependent and
independent variables and how each is measured. Finally, it describes two empirical
models used to test the hypotheses: the first model looks into organizational and
institutional contexts of firms to estimate GL participation; the second model is
adopted to estimate GL participation in early and late diffusion windows.
83


Overview of Research Hypotheses
This section quickly reviews the earlier proposed hypotheses. Three sets of
hypotheses are constructed, respectively based on resource-based theory, institutional
theory, and diffusion theory. The first set of hypotheses is related to organizational
resources and characteristics of firms to GL participation. The second set examines
the influence of institutional contexts of firms on GL participation. The last set looks
into both organizational and institutional contexts and relate them to GL participation
in early and late diffusion windows.
Internal firm contexts and GL participation
Hp A larger firm is more likely is to participate in a GL.program (Arora and Cason,
1995; King and Lenox, 2000; Potoski and Prakash, Rivera and deLeon, 2004;
2005Videras and Alberini, 2000; Welch et al., 2000).
H2: A firm with closer contact with final consumers is more likely to participation in
a GL program (Arora and Cason, 1996; Henriques and Sadorsky, 1996; Khanna
and Damon, 1999; Videras and Alberini, 2000).
Hp A firm with less capital investment intensity is more likely to participate in a GL
program (Darnell, 2003; Khanna and Damon, 1999).
H4: A firm with better financial performance is more likely to participate in a GL
program (Arora and Cason, 1995).
Institutional contexts of firms and GL participation
Hp A firm with poor environmental track records is more likely to participate in a
GL program (Arora and Cason, 1996, Khanna and Damon, 1999; King and
Lenox, 2000; Potoski and Prakash, 2005; Segerson and Miceli, 1998).
84


H$: A firm in an industry with a poor environmental track record is more likely to
participate in a GL program (Khanna and Anton, 2001).
H7: A firm with greater community environmental pressure is more likely to
participate in a GL program (Arora and Cason, 1996; Henrique and Sadorsky,
1996; Khanna and Damon, 1999; Rivera and deLeon, 2004; Welch et al., 2000).
H$: A firm in a state with greater emphasis on environmental protection is more likely
to participate in a GL program (Potoski and Prakash, 2005).
Early GL participation
Hi): A larger firm is more likely to be an early participant in a GL (Bums and Wholey,
1993; Tolbert and Zucker, 1983; Westphal et al., 1997).
Hio'. A firm with closer contact with final consumers is more likely to be an early
participant in a GL program (Bums and Wholey, 1993; Tolbert and Zucker,
1983; Westphal et al., 1997).
Hu: A firm with less capital investment intensity is more likely to be early
participants in a GL program (Bums and Wholey, 1993; Damall, 2003; Tolbert
and Zucker, 1983; Westphal et al., 1997).
Hu: A firm with better financial performance is more likely to be an early
participant in a GL program (Bums and Wholey, 1993; Damall, 2003; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
Late GL participation
Hi3: A firm with poor environmental track records is more likely to be a late
participant in a GL program (Bums and Wholey, 1993; Damall, 2002; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
H14: A firm in an industry with a poor environmental track is more likely to be a late
participant in a GL program (Bums and Wholey, 1993; Damall, 2002; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
85


His: The greater community environmental pressure a firm is more likely to be a late
participant in a GL program (Bums and Wholey, 1993; Damall, 2002; King and
Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
Hi6: A firm in a state with the greater environmental policy emphasis is more likely to
be a late participant in a GL program (Bums and Wholey, 1993; Damall, 2002;
King and Lenox, 2001; Tolbert and Zucker, 1983; Westphal et al., 1997).
Sample
This dissertation focuses on participants in the EPA sponsored Green Light (GL)
voluntary program (1991) that later was merged into the first stage of the Energy Star
Building program (ESB) (1995). Particular attention is paid to GL participants
between 1991 and 2000. The total number of GL participants that include partners
(1,589), allies (486), and endorsers (299) is 2,347 as of July 28, 2000. Among the
program participants, the 299 endorsers are not considered since they do not consist
of a particular firm but professional and industrial trade organizations; they were not
directly involved in upgrading lighting but rather promoted the program to their
industrial members.
Two restrictions are imposed on a firms inclusion in the sample, namely: (1)
they had to be publicly traded; and (2) U.S.-based. In the first instance, any
organizations that are not publicly traded in U.S. stock markets are excluded since
financial and some organizational-level data (e.g., number of employees, sales) are
not publicly available. They include private firms (not publicly traded), universities,
86


and governments. The second selection criterion is U.S.-owned. This is because
foreign firms may exhibit different environmental behavior, which would influence
these firms decisions to participate in GL. Several studies have found that it is
generally difficult for foreign firms (compared to U.S. firms) to establish and manage
the relations with their customers and suppliers as well as to acquire resources (King
and Lenox, 2001; Buckey and Casson, 1976; Cave, 1996; King and Shave, 2001).
Given that environmental reputation is becoming an important factor in the
establishment of improved relations with customers and suppliers, foreign firms may
be likely to pay more attention to their environmental performance, compared to their
U.S. competitors (King and Lenox, 2001).
Once GL participants are selected, the lists are merged with Standards & Poors
(S&P) 500 firms and used to determine whether the S&P firms participate in GL.
S&P 500 firms (as of December 1990) are selected as a sample frame since most
environmental data are only available for those firms (i.e., the Investor Responsibility
Research Center [IRRC] corporate environmental performance profile directory
focuses on S&P500 firms).
Among S&P500 firms, 59 firms are removed since they have missing data for
more than one variable, predominantly environmental regulatory pressure data. In
addition, ten firms are foreign-owned firms and likewise removed. The final sample
size is 431.
87