The Economics of NGO Behavior in the Policy Life Behavior: Discussion

1
The Economics of NGO Behavior in the Policy Life
Behavior Discussion

• Madhu Khanna
• University of Illinois Urbana Champaign

2
Economic Issues

• Why do NGOs arise is it self-interest or
  intrinsic motivation and how do they overcome
  incentives for free-riding?
• Characterizing the differences among NGOs
• Interest driven/Identity driven/Welfare
  maximization/Funding sources
• Radical vs moderate NGOs
• Impact and welfare implications
• Role of information in facilitating NGO activity
• Disclosure policies
• Gathering/disseminating/withholding
• Do NGOs crowd out or complement government
  regulations?
• To what extent can NGOs be relied upon to
  overcome market and government failures?
• Is there underprovision or overprovision of NGOs?
• Empirical evidence on
• Factors explaining growth in NGO
  memberships/numbers
• Impact of NGOs
• Types of firms targeted

3
Formation of NGOs

• Voluntary provision of public goods
• Social benefits that go beyond membership
• No contractual relationship with firms but affect
  and are affected by firm behavior
• Free-rider problem Outcome of a market failure
  yet subject to a market failure if external
  benefits gt private benefits
• Formation of NGOs
• Economic explanation rational participants
  obtain private benefits from a change in the
  status quo
• Assumes homogeneous agents
• Private benefits of an NGO?
• Achieving their agenda changing the status quo
• Increasing their power and resources irrespective
  of change
• To what extent are their synergies between
  private benefits to NGOs and public benefits?
• Empirical questions
• What motivates funding/participation in NGOs?
• How do these differ across types of NGOs and
  influence their activities?

4
What can NGOs do?

• Preempt legislation
• By certifying voluntary efforts by firms and
  allowing firms to oppose regulations
• By educating consumers and raising voluntary
  consumption and provision of green goods
• By providing information about firm efforts to
  the public and creating incentives for firms to
  adopt clean technologies prior to legislation
• Economic literature examines welfare
  implications/crowding out effects
• NGOs can withold/ be selective in the information
  they provide to the public to the detriment of
  social welfare
• Crowd out welfare enhancing regulations

5
What can NGOs do?

• Influence legislation
• (assuming that regulators are not welfare
  maximizing to start with and care more about the
  welfare of organized groups while NGOs are more
  concerned about social welfare)
• Campaign contributions vs. hard information
  gathering/ dissemination
• Type of legislation media oriented vs. industry
  wide local vs. federal environmental standards
  vs market based policies
• Implications for social welfare radical vs
  moderate NGOs
• Monitor and enforce legislation
• Do they go too far or not enough?

6
What can NGOs do?

• Directly engage with corporations (goal is not
  always welfare maximization)
• Create incentives for change through public
  recognition/boycotts/negative publicity
• Timing of the boycott/information dissemination
  to the media
• Targeting of firms
• Single firm vs. industry
• Weak vs strong firms
• Punishment vs. rewards
• What is the impact of NGOs?
• Greenwashing vs. effective change
• Tougher regulations or a shift to voluntary
  programs/self-regulation

7
Empirical Evidence on Targeting by NGOs

• Test two models of stakeholder behavior driving
  choice of firms targeted (Eesley and Lenox, 2005)
• Interest based seeking legitimacy by engaging
  in actions considered as socially desirable
• Likely to target firms with greater ability to
  change greatest violation of the NGOs interests
• Smaller firms, worst polluters, financially sound
  firms
• Identity based seek to differentiate themselves
  and strengthen membership
• target firms that attract the greatest public
  attention
• Larger more visible firms
• Classify all stakeholder groups that took
  environment related actions against firms
  1988-2003 into interest based and identity based
• Findings Large interest based, legitimate NGOs
  target large visible firms irrespective of
  environmental performance
• Identity driven groups target firms more likely
  to change (smaller firms with cash flow and
  poorer environmental performers)
• Inference Broader strategic goals appear to be
  at play line between interest based and identity
  based may be blurry evolve over time

8
Impact of ENGOs on Environmental Outcomes

• Cross country comparison of impact of ENGOs per
  capita on SO2, smoke and heavy particulates
  (Binder and Newmayer, 2005)
• Controlling for energy use per capita, percapita
  income, democracy and literacy endogeneity of
  ENGO p.c.
• Finding Negative association between ENGOs p.c.
  and air pollution levels
• Impact of NGOs on voluntary environmental
  activity
• Boycotts and location of firm in a state with
  high Sierra Club membership motivated greater
  participation in the voluntary 33/50 program and
  reduction in 33/50 releases (Innes and Sam, 2007)
• Location of firm in a state with high per capita
  membership in environmental organizations
  relative to that in the U.S.
• Not found to motivate greater pollution
  prevention activities (Khanna et al., 2007)
• Did lead more firms to undertake self-auditing
  (Khanna and Widyawati, 2006).

9
Impact on ENGOs on Policy Outcomes

• Types of environmental strategies pursued
• Advocacy for command and control instead of
  market based incentives
• Education and moral suasion
• Public disclosure of polluters
• Survey of 60 non-profits in Canada in 1997
  (Handy, 2001)
• 97 engaged in advocacy
• 100 use educational and information programs
• 95 advocated the use of command control type
  legislation
• 45 supported market incentives but only in the
  form of reduced subsidies that promote
  environmental degradation
• 12 supported market based incentives/emissions
  taxes
• How does policy choice of NGOs depend on funding
  source?

10
NGOs Substitutes or Complements to Government
Regulation in Developing Countries

• When formal environmental regulation is weak,
  community pressure in developing countries found
  to effectively regulate polluting firms
• Community pressure, proxied by per capita income,
  education and population density, in the vicinity
  of the plant
• Membership in local environmental organizations
• effective in motivating the adoption of a cleaner
  technology even when the new technology had
  higher costs.
• Even when a formal regulatory system exists there
  are differences in the enforcement of a pollution
  levy across urban areas in China.
• Variations in levy rate due to differences in
  incidence of citizens complaints (which in turn
  were affected by local education and per capita
  income) and ambient air quality after controlling
  for plant characteristics.

11
Summary

• Classify/expand the economic models based on the
  type of NGOs being considered and implications
  for outcomes
• Diversity of NGOs objectives, sources of
  funding, desire to survive/differentiate/make a
  change
• Translate the results of these theoretical models
  for testable hypotheses about NGO targeting
  strategies, policy outcomes desired and impacts.
• Empirical analysis
• at more disaggregated level by NGO types on
  characteristics of firms/legislation targeted
• how effectiveness of NGOs varies by industry
  groups/sectors
• how NGOs use/provide information
• Impact of NGOs on environmental outcomes