Voluntary regulations and innovation: The Case of ISO 14001

Sijeong Lim, Aseem Prakash

Research output: Contribution to journalArticlepeer-review

45 Citations (Scopus)

Abstract

Governments enact environmental regulations to compel firms to internalize pollution externalities. Critics contend that regulations encourage technological lock-ins and stifle innovation. Challenging this view, the Porter-Linde hypothesis suggests that appropriately designed regulations can spur innovation because (1) pollution reflects resource waste; (2) regulations focus firms' attention on waste; and (3) with regulation-induced focus, firms are incentivized to innovate to reduce waste. This article explores the regulation-innovation linkage in the context of voluntary regulations. The 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 find that country-level ISO 14001 participation is a significant predictor of a country's environmental patent applications, a standard proxy for innovation activity. The policy implication is that public managers should consider voluntary regulation's second-order effects on innovation, beyond their first-order effects on pollution and regulatory compliance.

Original languageEnglish
Pages (from-to)233-244
Number of pages12
JournalPublic Administration Review
Volume74
Issue number2
DOIs
Publication statusPublished - 2014
Externally publishedYes

ASJC Scopus subject areas

  • Sociology and Political Science
  • Public Administration
  • Marketing

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