Voluntary agreements: cost-effective or a smokescreen for failure?

Voluntary environmental agreements are widely considered an alternative instrument to command-and-control policies or economic incentives and are frequently labeled “efficient” or “cost-effective.” In this article it is argued that voluntary agreements are much more limited in scope. It is shown that agreements are cost-effective only under restrictive conditions rarely observed and that flexibility of nonbinding agreements often results in failing the environmental objectives altogether. Empirical evidence of an interdisciplinary analysis of eight case studies suggests that voluntary agreements should be applied as additional instruments rather than alternatives where small and homogeneous groups can be motivated to adhere to voluntary standards or where government agencies carry “big sticks” (i.e., threats of regulatory standards).