25 May 2007Working Paper Summaries

Self-Regulatory Institutions for Solving Environmental Problems: Perspectives and Contributions from the Management Literature

by Andrew King and Michael W. Toffel

What role can business managers play in protecting the natural environment? Academic research on when it might "pay to be green" has advanced understanding of how and when firms achieve sustained competitive advantage. The focus of such research, however, has begun to change in light of limits to available "win-win" opportunities and to gaps in regulation. This paper, intended as a book chapter, reviews current literature and explores the potential of self-regulatory institutions to solve environmental problems. Key concepts include:

Firms have created self-regulatory institutions to mitigate the risk of common sanctions and to address information asymmetries regarding production and employment practices.
Some self-regulatory institutions appear to reduce asymmetries in information, others to facilitate coordinated investment in solutions to common problems.
Future research needs to identify the factors that lead some, but not all, self-regulatory institutions to be effective routes to solving environmental problems.
The literature reviewed here is proving valuable to scholars who study the self-regulation of standards, knowledge sharing, and open-source software development.

Author Abstract

Scholars of management have long considered how institutions can help resolve market imperfections and thereby improve human welfare. Most previous research has emphasized the use of for-profit firms. Such institutions cannot effectively address many environmental problems, however, because environmental problems often transcend firm boundaries. As a result, management scholars have begun to explore the use of more distributed institutional forms. In this article, we review the emerging scholarship on the formation and function of self-regulatory institutions.