Voluntary Regulations and Innovation: The Case of ISO 14001

AuthorAseem Prakash,Sijeong Lim
Published date01 March 2014
Date01 March 2014
Sijeong Lim received her doctorate
in political science from University of
Washington. She serves as a postdoctoral
fellow in the Department of Political Science
at Stockholm University, Sweden. Broadly,
her research examines policy choices in the
provision of public and merit goods. She
is currently involved in a book project that
examines environmental policy outputs in
37 countries over the period 1970–2010.
Another project examines comparative
welfare policy in East Asia.
E-mail: sijeong.lim@statsvet.su.se
Aseem Prakash is professor of political
science and Walker Family Professor for
the Arts and Sciences at the University of
Washington. He is founding general editor
of the Cambridge University Press Series
on Business and Public Policy and coeditor
of the Journal of Policy Analysis and
Management. His research examines
voluntary environmental regulations,
nongovernmental organizations and
nonprof‌i ts, and how globalization affects
environmental protection, labor rights,
human rights, and women’s rights.
E-mail: aseem@uw.edu
Voluntary Regulations and Innovation: The Case of ISO 14001 233
Public Administration Review,
Vol. 74, Iss. 2, pp. 233–244. © 2014 by
The American Society for Public Administration.
DOI: 10.1111/puar.12189.
Sijeong Lim
Stockholm University, Sweden
Aseem Prakash
University of Washington
Governments enact environmental regulations to compel
f‌i rms to internalize pollution externalities. Critics con-
tend that regulations encourage technological lock-ins and
stif‌l e innovation. Challenging this view, the Porter-Linde
hypothesis suggests that appropriately designed regulations
can spur innovation because (1) pollution ref‌l ects resource
waste; (2) regulations focus f‌i rms’ attention on waste; and
(3) with regulation-induced focus, f‌i rms are incentiv-
ized to innovate to reduce waste.  is article explores the
regulation–innovation linkage in the context of voluntary
regulations.  e authors focus on ISO 14001, the most
widely adopted voluntary environmental program in the
world. Examining a panel of 79 countries for the period
1996–2009, they f‌i nd that country-level ISO 14001
participation is a signif‌i cant predictor of a country’s
environmental patent applications, a standard proxy for
innovation activity.  e policy implication is that public
managers should consider voluntary regulation’s second-
order ef‌f ects on innovation, beyond their f‌i rst-order ef‌f ects
on pollution and regulatory compliance.
Can voluntary environmental regulations pro-
mote environmental innovation?1 Traditional
regulations, sometimes called command and
control, specify the maximum pollution that regula-
tees can emit or discharge and the technologies they
need to install for pollution control.  is regulatory
approach has worked well in many ways. Compared
to the 1960s, air and water pollution levels have come
down signif‌i cantly. Critics of command and control,
however, contend that these regulations have imposed
heavy costs on both the regu-
latees and the regulators. Since
the 1980s, there has been an
active debate about whether the
allegedly high-cost regulatory
environment is encouraging the
relocation of pollution-intensive
industries from developed countries to lightly regu-
lated developing countries (Cao and Prakash 2010;
Jaf‌f e et al. 1995). More importantly, from our point
of view, command and control regulations have been
accused of stif‌l ing innovation and creating long-term
inef‌f‌i ciencies. Critics contend that high compliance
costs hurt regulatees’ prof‌i tability and reduce their
ability to undertake research and development
(R&D) (Gray and Shadbegian 1998; Palmer, Oates,
and Portney 1995), thereby leading to technological
lock-ins (Comin and Hobijn 2009).
In the context of the regulatory ef‌f‌i ciency debate,
Porter and van der Linde (1995) introduce a novel
idea.  ey suggest that pollution should be viewed as
a resource waste issue, not necessarily as a property
rights or an externality issue (Coase 1960). From a
f‌i rm’s perspective, policies that reduce resource waste
should also improve prof‌i ts.  eir message to f‌i rms as
well as to public managers is that appropriate regula-
tions can direct managerial attention to resource waste
and thereby encourage f‌i rms to invest in innovations
that can reduce waste. Porter and van der Linde
(1995) caution, however, that only some types of
regulations promote innovation. Regulations that
lead f‌i rms to identify waste must also give them the
autonomy to change their production processes and
internal management systems to reduce waste. For
them, regulations must not specify technologies.  e
key idea is that f‌i rms should be allowed to experiment
with new ways that economize on resources.  us,
appropriate regulations create a “double dividend”:
more prof‌i ts and less pollution.
is is the f‌i rst article to examine the Porter-Linde
hypothesis in the context of voluntary environmental
regulations. Voluntary pro-
grams are regarded by public
managers as important tools
for New Public Management
(Kettl 2002) that can mitigate
the “regulation dilemma” for
governments facing budget-
ary constraints (Potoski and Prakash 2004).  ey
provide valuable information that allows regulators
to sort f‌i rms based on their commitment to regula-
tory compliance. Consequently, regulators can focus
their monitoring and enforcement resources on f‌i rms
Voluntary Regulations and Innovation:
e Case of ISO 14001
Appropriate regulations create a
“double dividend”: more prof‌i ts
and less pollution.

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