Preempting Uncertain Regulatory Threats

Most models of voluntary self-regulatory actions designed to preempt environmental regulations assume certainty regarding the likelihood of the regulatory threat. We examine industry voluntary self-regulatory behavior under uncertainty of two sorts: first, the likelihood that an advocacy group triggers legislative action, and second, the likelihood that legislation passes once a legislative proposal has been put forward. We find that increasing the uncertainty of either type can decrease or increase self-regulatory actions. The latter result calls into question conventional wisdom, which suggests that a strong and credible regulatory threat is needed to induce industry to take voluntary self-regulatory actions.