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Environmental Protection

 There has been growing interest in the use of voluntary agreements (VAs) as an environmental policy tool. This article uses a simple model to determine whether VAs are likely to lead to efficient environmental protection. We consider cases where polluters are induced to participate either by a background threat of mandatory controls (the “stick” approach) or by cost-sharing subsidies (the “carrot” approach). The results suggest that the overall impact on environmental quality could be positive or negative, depending on a number of factors, including the allocation of bargaining power, the magnitude of the background threat, and the social cost of funds.

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