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Does Private Regulation Preempt Public Regulation?

Nov 2017
Working Paper
Neil Malhotra, Benoît Monin, Michael Tomz

Previous research has emphasized corporate lobbying as a pathway through which businesses can influence government policy. This paper examines a less-studied mode of business influence: private regulation, defined as voluntary efforts by firms to restrain their own behavior. We argue that firms can use modest private regulations as a political strategy to preempt far more stringent public regulations. To test this hypothesis, we administered experiments to three groups that often demand environmental regulations: voters, environmental activists, and government officials. Our experiments revealed how each group responded to information about voluntary environmental programs (VEPs) by firms. We found that relatively modest VEPs dissuaded all three groups from seeking more draconian government regulations. We observed this response, however, only when nearly all companies within an industry joined the voluntary effort. Our study therefore documents an understudied source of corporate power in politics, while also exposing the limits of private regulation as a strategy for influencing government policy.

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