The setting of voluntary agreements between industry and government: Bargaining and efficiency

This paper aims at providing a preliminary economic analysis of the efficiency of an emerging environmental policy instrument: the so‐called voluntary agreement. The use of a data base we have built containing 75 existing agreements in 12 OECD countries allows us to stylise these empirical objects. They are mutually agreed contracts signed between a national administration and a coalition of firms. They include a set of physical pollution reduction objectives to be reached by the firms. According to classical economic categories, they are similar to a traditional policy instrument, i.e. direct regulation, but one which has been devised after an intense negotiation process. As regards efficiency, the key question lies in the impact of such negotiations. In our analytical framework, we distinguish two subjects of negotiation: the collective environmental objective, i.e. the physical amount of pollution to be globally suppressed via the completion of the contract, and the means required to reach the collective objective, i.e. the allocation rule of private pollution reduction objectives. According to these categories a major asymmetry arises in the negotiation structure. When the dominant dimension of the negotiations concerns the environmental objective, firms are clearly opposed to the administration because of their eagerness to obtain as low an objective as possible. In that case, voluntary agreements do not seem to be an original policy approach. They can be compared with classical consultation processes of interested parties when designing new regulations and raise similar questions: the efficiency of information collection and the dangers of regulatory capture. But when the subject being bargained concerns the means to reach environmental objectives which have already been fixed, individual firms become rivals. The logic of such negotiations lies in inter‐firm bargaining arbitrated by the administration. Voluntary agreements tend to be an original negotiation‐based policy instrument. Decentralised bargaining improves the allocative efficiency.