Does Compliance Pay? Social Standards and Firm‐Level Trade

What is the relationship between trade and social institutions in the developing world? The research literature is conflicted: Importing firms may demand that trading partners observe higher labor and environmental standards, or they may penalize higher standards that raise costs. This study uses new data on retailers and manufacturers to analyze how firm‐level trade responds to information about social standards. Contrary to the “race to the bottom” hypothesis, it finds that retail importers reward exporters for complying with social standards. In difference‐in‐differences estimates from over 2,000 manufacturing establishments in 36 countries, achieving compliance is associated with a 4% [1%, 7%] average increase in annual purchasing. The effect is driven largely by the apparel industry—a long‐term target of anti‐sweatshop social movements—suggesting that activist campaigns can shape patterns of global trade.     

The social cost of trading: Measuring the increased damages from sulfur dioxide trading in the United States

The sulfur dioxide (SO₂) cap and trade program established in the 1990 Clean Air Act Amendments is celebrated for reducing abatement costs ($0.7 to $2.1 billion per year) by allowing emissions allowances to be traded. Unfortunately, places with high marginal costs also tend to have high marginal damages. Ton‐for‐ton trading reduces emissions in low damage areas (rural) while increasing emissions in high damage areas (cities). From 2000 to 2007, conservative estimates of the value of mortality risk suggest that trades increased damages from $0.8 to $1.1 billion annually relative to the initial allowance allocation and from $1.5 to $1.9 billion annually relative to a uniform performance standard. With U.S. Environmental Protection Agency (USEPA) values, trades increased damages from $2.4 to $3.2 billion annually compared to the initial allowance allocation and from $4.4 to $5.4 billion compared to a uniform performance standard. It is not clear that the ton‐for‐ton SO₂ cap and trade program is actually more efficient than comparable command and control programs. The trading program needs to be modified so that tons are weighted by their marginal damage. © 2011 by the Association for Public Policy Analysis and Management.     

Compensation rules for climate policy in the electricity sector

Most previous cap and trade programs have distributed emission allowances for free to incumbent producers. However, in the electricity sector the value of CO₂ allowances may be far in excess of costs to industry and giving them away to firms diverts allowance value from other purposes. Using a detailed simulation model, this paper shows that compensation to firms losing asset value under a climate cap and trade policy can be achieved for a small fraction of total allowance value, if targeted carefully. However, the economic efficiency cost of providing incremental compensation to reach the fully compensated level is many multiples of that incremental compensation. These considerations might move policymakers away from free allocation of CO₂ emission allowances in the electricity sector. © 2008 by the Association for Public Policy Analysis and Management.     

The Contours of “Cap and Trade”: The Evolution of Emissions Trading Systems for Greenhouse Gases

This article documents the evolution of “cap and trade” as a policy response to global climate change. Through an analysis of 33 distinct policy venues, the article describes how the cap and trade policy domain has developed along spatial, temporal, and institutional dimensions. This discussion demonstrates that following initial discussions of cap and trade in the Kyoto Protocol negotiations, the idea quickly spread to other policy venues, creating a complex system of multilevel governance, where many questions about how to govern emissions trading remain contested. The analysis contextualizes recent questioning of emissions trading as an appropriate mechanism for controlling GHG emissions, as well as the ongoing debates about who should govern cap and trade and how it should be carried out. The findings highlight the value added of a domain‐level perspective and suggest the need for future research on the sociopolitical nature of cap and trade policy debates.     

Policy attribute framing: A comparison between three policy instruments for personal emissions reduction

A comparative experiment in the UK examined people's willingness to change energy consumption behavior under three different policy framings: energy tax, carbon tax, and personal carbon allowances (PCA). PCA is a downstream cap‐and‐trade policy proposed in the UK, in which emission rights are allocated to individuals. We hypothesized that due to economic, pro‐environmental and mental accounting drivers PCA would have greater potential to deliver emissions reduction than taxation. Participants (n = 1,096) received one version of a survey with the same energy‐behavior–related questions and identical incurred costs under one of the following framings: energy tax (where carbon was not mentioned), carbon tax, and PCA. Results suggest that policies that draw people's attention to carbon (PCA and carbon taxation) could have greater impact on their stated willingness to reduce energy consumption, and on the reduction amounts prompted, than would a non‐overt price signal (energy tax). There is mixed evidence, however, as to whether PCA or carbon taxation would produce the largest energy demand reductions. Some indication was found for a spillover toward wider carbon conservation under the PCA framing. © 2011 by the Association for Public Policy Analysis and Management.     

The Political Viability of Carbon Pricing: Policy Design and Framing in British Columbia and California

The adoption of climate policies with visible, substantial costs for households is uncommon because of expected political backlash, but British Columbia's carbon tax and California's cap‐and‐trade program imposed such costs and still survived vigorous opposition. To explain these outcomes, this article tests hypotheses concerning policy design, framing, energy prices, and elections. It conducts universalizing and variation‐finding comparisons across three subcases in the two jurisdictions and uses primary sources to carry out process tracing involving mechanisms of public opinion and elite position‐taking. The article finds strong support for the timing of independent energy price changes, exogenous causes of election results, reducing the visibility of carbon pricing, and using public‐benefit justifications, as well as some support for making concessions to voters. By contrast, the effects of the use of revenue, industry exemptions/compensations, and making polluters pay are not uniform, because the effects of revenue use depend on how it is embedded in coalition building efforts and a middle path between exempting or compensating industry and burdening it appears to be more effective than pursuing just one or the other approach.     

The Macroeconomic Effects of 2017 Through 2025 Federal Fuel Economy and Greenhouse Gas Emissions Standards

In the absence of a national carbon price, the federal Corporate Average Fuel Economy standards and the related greenhouse gas emissions (GHG) standards are the primary mechanisms through which the U.S. reduces transportation GHG emissions. In 2012, these standards were set to rise for light‐duty vehicles between 2017 and 2025, eventually achieving a target of 54.5 miles per gallon in 2025. Since 2012, conditions have changed: forecasts of future gasoline prices have dropped dramatically, consumers have demanded larger vehicles, and the cost of compliance appears to be larger than previously thought. In this article, we analyze the possible macroeconomic effects of the standards with both 2012 inputs and updated inputs to reflect these new market developments. The results reveal that the short‐term effects of the federal standards will be negative, but the long‐term effects will be positive, using both 2012 and updated inputs. The transition from annual negative employment impacts to positive impacts occurs between 2023 and 2026, depending on which set of assumptions are used. Possible revisions to the standards that freeze them at 2020 levels or decrease their stringency reduce short‐term negative impacts but also reduce long‐term positive impacts. We conclude with a discussion of policy implications as they relate to the current energy and climate policy conditions.     

Covenants with weak swords: ISO 14001 and facilities' environmental performance

Voluntary environmental programs are codes of progressive environmental conduct that firms pledge to adopt. This paper investigates whether ISO 14001, a voluntary program with a weak sword—a weak monitoring and sanctioning mechanism—can mitigate shirking and improve participants' environmental performance. Sponsored by the International Organization for Standardization (ISO), ISO 14001 is the most widely adopted voluntary environmental program in the world. Our analysis of over 3,000 facilities regulated as major sources under the U.S. Clean Air Act suggests that ISO 14001‐certified facilities reduce their pollution emissions more than non‐certified facilities. This result persists even after controlling for facilities' emission and regulatory compliance histories as well as addressing potential endogeneity issues between facilities' environmental performance and their decisions to join ISO 14001. © 2005 by the Association for Public Policy Analysis and Management     

Assessing OSHA Performance: New Evidence from the Construction Industry

The determinants of OSHA performance can be examined by breaking the regulatory process into three elements relating to enforcement, compliance behavior, and the adequacy of standards in addressing safety outcomes. This paper develops and applies this framework to the U.S. construction industry during the period 1987 to 1993. Enforcement activity among the firms in the sample was substantial, with firms facing a high probability of annual inspection. But, despite this significant enforcement effort, inspections have a modest effect on firm compliance with OSHA standards. Finally, the health and safety standards cited most frequently diverge from the major sources of fatalities and injuries on construction projects. These results suggest that historic enforcement policies toward construction make less sense as OSHA moves into its fourth decade of operation. More generally, the paper illustrates the problem of focusing enforcement resources on large, high‐profile companies even though they often are not the major source of regulatory problems in an established area of public policy intervention. © 2001 by the Association for Public Policy Analysis and Management.     

Conflict between Explicit and Tacit Public Service Bargains in U.K. Executive Agencies

Public service bargains (PSBs) define rewards, competencies, and loyalties for civil servants. They involve both explicit and tacit agreements with politicians. The article suggests that these two kinds of bargain may not be closely coordinated with one another, and can become “loosely coupled,” operating and evolving with relative independence. This is particularly likely when there is conflict between rational‐actor preferences and institutional expectations about political‐administrative behavior. Such a trade‐off can be managed by “decoupling” the explicit and tacit PSB, so that they operate differently in public and in private. Loose coupling results in inconsistent PSBs that are resistant to change, whereas decoupling highlights the compliance costs that actors face when securing cultural legitimacy for their bargains. These arguments are illustrated by the long‐term development of “Next Steps” agencies in the United Kingdom, where a marked disjuncture has emerged between the stated and practiced PSB.     

The Durability of Carbon Cap‐and‐Trade Policy

The surge of American states' adoption of policies to mitigate climate change in the late 1990s and 2000s appeared to constitute a first wave of expanding use of market‐based policy tools such as carbon cap‐and‐trade in the absence of binding federal constraints. Instead, a substantial number of states have rescinded earlier policy commitments, as have Canadian provincial partners, while others have remained engaged or even expanded their policies. This article examines the durability of the three regional cap‐and‐trade zones that were established with comparable structure and intent but met very different fates. The analysis of these regional entities places particular emphasis on their political resilience across election cycles, their ability to be flexible and adapt administratively through mid‐course adjustments, and their capacity to build constituency support through benefit‐allocation to offset opposition linked to cost imposition.     

Long‐term care reform and the role of housing finance

Abstract

The Clinton administration's recently announced home and community‐based care proposals have potentially important implications not only for long‐term care policy, but also for housing policy in the United States. This article attempts to draw out some of those implications. The first section examines problems inherent in the current “medical/welfare” system of financing long‐term care, which constrains consumer choice by limiting the supply of providers to control costs and by increasing medical professionals’ control over the types of services provided in the name of quality control. The medical/welfare dominance of long‐term care policy has resulted in an overreliance on nursing homes as providers, resulting in both escalating costs and continued consumer dissatisfaction.

The second half of the article looks at recent market and policy developments in response to consumer demand for lower cost alternatives to nursing homes. These alternatives promote more consumer autonomy and control in supportive housing arrangements. A more comprehensive services and housing policy could promote these developments in an approach that combines the security of public financing of supportive services with the benefits of consumer choice, market competition, and legal protections that characterize housing markets. In such a scenario, housing finance institutions—including government agencies, lenders, developers, and investors—could play a pivotal role in the long‐term care debate not only by unlocking substantial financial resources but, equally important, by transforming the provision of long‐term care services to promote consumer choice and autonomy.     

Smokescreen Politics? Ratcheting Up EU Emissions Trading in 2017

The reform of the EU Emissions Trading System (ETS) adopted in November 2017 was surprisingly strong, given the previous opposition from central member‐states like Poland and key stakeholders like the energy‐intensive industries. The carbon price has also increased substantially since then. To explain why such major reform was possible, we present several findings with wider relevance. Importantly, all the actors pushing for a more ambitious reform benefitted from having a central, “second‐best” mechanism in place—the Market Stability Reserve (MSR)—which could be further tightened. By focusing cancelation on allowances in the MSR and taking place only after 2023, policy entrepreneurs managed to make the distribution of costs obscure and diffuse, whereas the benefits (a probable higher carbon price and related greater auctioning revenues for member‐states) were more specific and closer in time. That is what we call “smokescreen politics.”     

Measuring Trade Profile with Granular Product-Level Data

The product composition of bilateral trade encapsulates complex relationships about comparative advantage, global production networks, and domestic politics. Despite the availability of product-level trade data, most researchers rely on either the total volume of trade or certain sets of aggregated products. In this article, we develop a new dynamic clustering method to effectively summarize this massive amount of product-level information. The proposed method classifies a set of dyads into several clusters based on their similarities in trade profile—the product composition of imports and exports—and captures the evolution of the resulting clusters over time. We apply this method to two billion observations of product-level annual trade flows. We show how typical dyadic trade relationships evolve from sparse trade to interindustry trade and then to intra-industry trade. Finally, we illustrate the critical roles of our trade profile measure in international relations research on trade competition.     

The roadmap to net-zero emission: Do geopolitical risk and energy transition matter?

Global crises have heightened policy uncertainties and efforts to address global climate change. Limited evidence exists in the literature on geopolitical risk's direct and indirect roles in addressing global emissions. In this study, we examine whether geopolitical risk could impede or facilitate efforts to attain a net-zero emissions target through energy transition using panel data for 42 countries from 1990 to 2020. Various econometric techniques were applied in this study to present robust findings and reliable conclusions. Estimates from the Driscoll-Kraay, Lewbel two-stage least squares and method of moment regression techniques consistently showed that countries' geopolitical risk directly increases emissions (total greenhouse gas, carbon, methane, and nitrous oxide). At the same time, energy transition, measured with renewable energy consumption, mitigates these emissions. In addition, evidence from the partial linear functional-coefficient model technique indicates that renewable energy consumption consistently mitigates emissions when geopolitical is minimal (at a minimum and mean level). However, the role of renewable energy consumption in reducing emissions becomes weaker when geopolitical risk is heightened—thus, when geopolitical risk reaches its maximum level. We recommend that efforts to sustain renewable energy transition and maintain geopolitical stability are vital for achieving net-zero emissions and climate change mitigation.     

Using Common‐Pool Resource Principles to Design Local Government Fiscal Sustainability

This article analyzes local government fiscal sustainability as a common‐pool resource (CPR) problem. Comparing the experiences of Los Angeles County, San Bernardino City, and San Bernardino County, California, the analysis applies a framework developed from three decades of CPR research to show the importance of six micro‐situational variables—communications with the full set of participants, known reputations of participants, high marginal per capita return, entry or exit capabilities, longer time horizon, and agreed‐upon sanctioning capabilities—in shaping collective action dynamics and building the trust and reciprocity among stakeholders needed to achieve fiscal sustainability. The underlying contextual conditions for these micro‐situational variables vary based on specific socioeconomic and political settings, but the findings suggest that institutions and processes can be designed based on several well‐tested principles in CPR governance to encourage stakeholders to look beyond their immediate self‐interests and make decisions that account for the community's long‐term fiscal sustainability.     

Nudging Early Reduces Administrative Burden: Three Field Experiments to Improve Code Enforcement

In the past decade, public sector organizations around the world have worked to simplify administrative processes as a way to improve user experience and compliance. Academic evidence on administrative burden supports this approach and there is a strong body of research showing that learning costs, compliance costs, and psychological costs help to explain why residents do not always take up programs for which they are eligible. This article considers the role of these types of costs in a different set of resident-state interactions: compliance with regulations. We present the results of three large field experiments aimed at improving resident compliance with municipal housing codes using targeted behavioral interventions. We find that contacting property owners earlier, redesigning first notices, and proactively communicating with previous violators, can significantly improve compliance by 14.7 percent, 3.3 percent, and 9.2 percent, respectively, with costs savings ranging from 6 to 15 percent of a city's annual enforcement budget. Our results counterintuitively suggest that sometimes adding steps to an administrative process can reduce the costs associated with the resident-state interaction.     

Risk,politics, and development: Lessons from the UK's democracy aid

Political risks are inescapable in development. Donors keep them in check with a range of tools, but existing options provide little guidance about how political forms of risk can—or should—shape programme design. This paper presents a novel framework that offers practical guidance on how to think about and manage some of these risks. This is based on a review of programmes delivered by the Westminster Foundation for Democracy, which provides a specific type of aid: democracy assistance. Political forms of risk have a strong influence on that aid, so it provides a valuable example. Our framework centres on two trade‐offs inherent in the provision of aid for democracy support. The first relates to the type of approach employed in a programme; should it focus on a thematic issue or a specific event, or should it focus primarily on an institution and its processes? The second concerns the scope of a programme in terms of who it includes. Understanding the costs and benefits of these trade‐offs will help development practitioners to make decisions about political risks in a more rigorous and transparent way and, potentially, to shift from a culture of risk aversion, to one of informed risk‐taking.     

Setting limits through global budgeting: hospital cost containment in Rhode Island

In 1974, hospitals in Rhode Island have participated in annual negotiations with state officials and representatives from Blue Cross to determine the allowed increase in statewide hospital costs (the "Maxicap") for the next fiscal year, based on projected increases in hospitals' revenues, changes in patient volume and operating expenses. Individual hospital budgets may be above or below the Maxicap as long as the total increase in hospital costs for all hospitals in the state does not exceed the negotiated amount. At a time when regulatory solutions are increasingly under fire, continued support for Rhode Island's approach to hospital cost containment from third party payers, providers and public officials stands in stark contrast to other states where rate setting was either dismantled or discredited as a cost control strategy. A negotiated global cap on hospital expenditures offers an alternative to formula-based state rate-setting methodologies which could be incorporated as part of an all-payer reimbursement methodology or as an incremental step towards more comprehensive reform.     

Assessing the impact of stricter alcohol advertising standards: the case of Beam Global Spirits

Reducing youth exposure to alcohol advertising is a global health priority. In most countries around the world, the alcohol industry is given the opportunity to regulate itself with respect to advertising practices. Generally, the alcohol industry self‐regulations are lax, allowing youth to be disproportionately exposed to alcohol advertising. However, Beam Global Spirits and Wine (Beam) voluntarily adopted more restrictive advertising standards in the United States in 2007. This study assessed Beam's compliance with their new standard and estimates its effect on youth exposure and advertising costs. We found that Beam's compliance with its more restrictive standards was imperfect, but never‐the‐less, we estimated that youth exposure to alcohol advertising was reduced compared to other spirits brands. Beam's more restrictive standards did not increase their advertising costs, and therefore other alcohol companies should consider adopting similar standards around the world. Copyright © 2015 John Wiley & Sons, Ltd.