Covenants with Weak Swords: ISO 14001 and Firms’

Environmental Performance 

Matthew PotoskiIowa State University

&

Aseem PrakashUniversity of Washington

Research Question

• Do voluntary programs improve participants’ environmental performance?

• Specifically, do programs with weak monitoring and sanctioning mechanisms – weak swords – mitigate shirking and improve performance?

Big Picture

• Diminishing returns to command and control

• Controversy over the efficacy of voluntary environmental programs

• Empirical results provide mixed evidence on efficacy

Key Argument

• Voluntary programs effective if they mitigate shirking

• Shirking mitigated through - monitoring and sanctioning - Public disclosures- Sanctioning by program sponsors

• However, programs with monitoring only can mitigate shirking

ISO 14001

• Launched in 1996

• Geneva-based non-govt, non-profit organizational

• By the end of 2002 49,000 facilities in 118 countries had joined ISO 14001

• EMS-based

• Third-party auditing

Previous research

• Responsible CareHo: shirking mitigated due to

institutional mimicry and normative pressures

Ha: Shirking not mitigated because absence of monitoring

Result: RC not effective

Our contribution• Build on RC research, contrast ‘no

sword’ with ‘weak sword’

• ISO 14001 similar to RC because of their EMS focus

• Institutional pressures less likely to work in ISO 14001 vs. RC

• If ISO 14001 participants improve performance, third-party monitoring significantly contributed to it

Methods

• Treatment Effect model to control for endogeniety issues

• Stage 1: Estimate the probability of joining ISO 14001

• Stage 2: Examine if joining ISO 14001 improved performance

• Variables: Facility, regulatory, neighborhood, and state policy contexts