The private costs and benefits of environmental self‐regulation: which firms have most to gain?

A (correctly designed) voluntary self‐regulatory scheme can – in theory – improve social welfare if the benefits to society outweigh the costs. However, businesses may not choose to participate in a voluntary scheme if their private benefits do not outweigh their costs; external benefits are irrelevant to the profit maximizing firm. This paper reviews literature on self‐regulation, primarily focusing on factors that influence the net private benefits of environmental programmes. The literature is summarized in a manner that allows one to identify characteristics of firms that are most likely to accrue positive net benefit from environmental programmes, and to determine ways in which self‐regulatory bodies might raise those benefits, thereby increasing participation rates. Copyright © 2004 John Wiley & Sons, Ltd and ERP Environment.