The use of negotiated environmental agreements: from gentlemen’s agreements to binding contracts

The first negotiated environmental agreements that emerged in the policy arena were characterised as legally unbinding gentlemen’s agreements containing only vague targets, little provisions concerning monitoring and hardly any sanctions in case of non-compliance. This has brought about much criticism towards the effectiveness and legality of negotiated agreements as a policy instrument and has lead to the development of guidelines concerning the use of environmental agreements by policy makers. These guidelines stress the importance of signing binding agreements with stringent enforcement provisions. Whereas these guidelines were introduced with the aim to stimulate the use of this instrument, they seem to have resulted in the opposite. We introduce a two-stage model that examines the acceptance and the compliance decision to explain this observation. The intuition is that stringent enforcement provisions increase the expected non-compliance cost, and as such decline industries' willingness to accept an agreement in the first place. We conclude that due to reciprocity between the enforcement regime and the background legislative threat both should be considered jointly by policy makers.