Sources of specification errors in the assessment of voluntary environmental programs: understanding program impacts

Voluntary environmental policy has often been criticized as picking the low-hanging fruit, producing benefits that are relegated to a self-selected sample, and improvements observed in voluntary environmental policy are indistinguishable from business as usual. These criticisms are, in part, the result of the two-stage models used to evaluate voluntary environmental programs that may over-control for the mechanisms that lead to program effectiveness. In addition, voluntary environmental policy may play a valuable role in achieving effective, efficient, and meaningful change in corporate behavior through spillover of public goods to non-participating firms, and changing norms of corporate behavior that are not detected using econometric methods. This manuscript details evidence across the body of literature that supports this hypothesis and suggests a variety of mechanisms that voluntary environmental programs may produce social welfare benefits with low social costs. The decision to employ voluntary environmental programs should be based on an assessment of trade-offs of consequences between adopting ineffective programs and costs involved with failing to adopt effective programs. Copyright Springer Science+Business Media New York 2015