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Firms' Choice of Regulatory Instruments to Reduce Pollution: A Transaction Cost Approach

Published online by Cambridge University Press:  20 January 2017

Magali Delmas
University of California, Santa Barbara
Alfred Marcus
University of Minnesota Carlson School of Management


This paper compares the economic efficiency of firm-agency governance structures for pollution reduction using transaction costs economics. Two governance structures are analyzed with the transaction costs approach: command and control regulation (CCR) and negotiated agreements (NAs). We propose that the choice of governance structure depends on the strategies firms pursue given the attributes of their transactions and their market opportunities. The application of transaction cost economics analysis leads to different choices of regulatory instruments. Firms in more mature, stable industries are likely to choose command and control, while firms in new, dynamic sectors are more likely to opt for negotiated agreements. Frequency of transactions is a key factor in firm choice.

Research Article
Copyright © V.K. Aggarwal 2004 and published under exclusive license to Cambridge University Press 

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