C Liston-Heyes

GS Epstein

Marco A. Haan

PR Graichen

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Environ Resource Econ (2016) 65:313–315DOI 10.1007/s10640-016-0014-6A Rent-Seeking Model of Voluntary Overcompliance:AddendumMarco A. Haan1Accepted: 12 February 2016 / Published online: 11 March 2016© The Author(s) 2016. This article is published with open access at Springerlink.comAbstract In a previous paper (Haan in Environ Resour Econ, 2016) I missed some relevantliterature essentially related to that paper. In this addendum I discuss how two earlier con-tributions (Graichen et al. in Public Choice 108:273–293, 2001; Liston-Heyes in J EnvironEconManag 41:1–12, 2001) are related to Haan (Environ Resour Econ, 2016), and howHaan(Environ Resour Econ, 2016) differs from those contributions.Keywords Voluntary overcompliance · Regulation · Rent-seekingJEL Classification Q50 · D72 · L511 IntroductionAfter acceptance of my paper A Rent-Seeking Model of Voluntary Overcompliance (Haan2016), it has been brought to my attention1 that mine is not the first paper in which a pollutingfirm behaves more environmentally friendly in an attempt to essentially lower the stakes of anenvironmental group in the rent seeking game that ensues. Needless to say, this literature, ofwhich I was unaware when I submitted my paper to this journal, should have been referencedin my paper. I am grateful to the Editor, Michael Finus, for giving me the opportunity towrite an Addendum and to give credit where it is due. Below I give a short overview of thatliterature, and also discuss how it relates to my paper.1 Thanks to Bouwe Dijkstra for pointing this out.This paper is an addendum to the article published with DOI:10.1007/s10640-015-9973-2.B Marco A. Haanm.a.haan@rug.nl1 IEEF, Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV,Groningen, The Netherlands123314 M. A. Haan2 Related LiteratureIn Liston-Heyes (2001) (L-H henceforth), a developer wants to undertake a project of fixedsize that will earn it profit π but also cause external damage D(π), where D is increasingand convex in π . An environmental group and the developer then play a rent-seeking game,where the prize for the environmental group is D(π) (if it wins, it can avoid environmentaldamage of that size), whereas the prize for the developer is π (if it wins, it can make profitsD). L-H shows that, because of the contest, the developer will choose a project size π that issmaller (and hence environmental damage that is lower) than what she would choose withouta contest. However, the environmental project size is still too large from awelfare perspective.In her paper, L-H especially focuses on the timing of lobbying expenses, which in her modelcan be determined by the social planner.In Graichen et al. (2001) (GRD henceforth), a monopolist energy firm produces a quantityq by causing a certain amount of pollution e, causing perceived damage D(e) and allowingfor profits π(e),2 which is increasing in e. The monopolist and an environmental group playa rent-seeking game on whether the contract with the monopolist should be renewed. Alsohere, the prize for the monopolist is π(e), whereas the prize for the environmental group isD(e). Also here, the monopolist can influence the lobbying game by their choice of e (andhence π). As in L-H, when having to lobby, the environmental group chooses a pollutionlevel that is lower than it would otherwise be.Hence, both in L-H as well as in GRD, the firm essentially proposes a project that will becarried out if it wins the rent-seeking contest. By making that project more environmentallyfriendly, thefirm influences that contest. InHaan (2016), thefirmalreadymakes an irrevocableinvestment in abatement before entering the contest. Although the mechanisms are verysimilar, that makes mine a model of voluntary overcompliance, where L-H and GRD are not.In those papers, firms pollute less than what they would do without a contest. In my paper,firms pollute less than what current regulation requires. In L-H and GRD, firms influence thecontest by committing to be more environmentally friendly should they win. Hence, thesepapers apply to situations where those commitments are credible. In Haan (2016), firmsinfluence the contest by already being more environmentally friendly before the conteststarts,3 and credibility is not an issue.Epstein and Nitzan (2004) propose a more general model. In their paper, two players playa two-stage contest. In the first stage, each player proposes a policy. In the second stage,a contest takes place where the winning player gets to implement her proposed policy. Bystrategically choosing the first-stage policy, players can influence the contest, and hence theirchances of winning and lobbying costs. Note that both L-H and GRD can be interpreted asspecial cases of this model, where only one player can act in stage 1. Again, Haan (2016) issomewhat different as the firm already takes an action in stage 1, rather than just making aproposal.Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 Interna-tional License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, andreproduction in any medium, provided you give appropriate credit to the original author(s) and the source,provide a link to the Creative Commons license, and indicate if changes were made.2 Or, in their notation, M(e); I change the notation to be consistent with L-H.3 Of course, there are more differences between the three papers, e.g. in terms of modeling decisions andfocus.123A Rent-Seeking Model of Voluntary Overcompliance: Addendum 315ReferencesEpstein GS, Nitzan S (2004) Strategic restraint in contests. Eur Econ Rev 48:201–210Graichen PR, Requate T, Dijkstra BR (2001) How to win the political contest: a monopolist vs environmen-talists. Public Choice 108:273–293Haan MA (2016) A rent-seeking model of voluntary overcompliance. Environ Resour Econ. doi:10.1007/s10640-015-9973-2Liston-Heyes C (2001) Setting the stakes in environmental contests. J Environ Econ Manag 41:1–12123

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A Rent-Seeking Model of Voluntary Overcompliance: Addendum

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A Rent-Seeking Model of Voluntary Overcompliance: Addendum

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