The NGO's Dilemma: How to Influence Firms to Replace a Potentially Hazardous Substance

Tim Kraft (), Yanchong Zheng () and Feryal Erhun ()
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Tim Kraft: Darden School of Business, University of Virginia, Charlottesville, Virginia 22903
Yanchong Zheng: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142
Feryal Erhun: Department of Management Science and Engineering, Stanford University, Stanford, California 94305

Manufacturing & Service Operations Management, 2013, vol. 15, issue 4, 649-669

Abstract: We study a nongovernmental organization's (NGO's) decisions when it attempts to remove a potentially hazardous substance from commercial use in a market with competing firms. Specifically, we determine under what market and regulatory conditions an NGO should target the industry versus the regulatory body to influence firms to replace the substance. We examine how the NGO's strategy changes as the NGO's pragmatism (i.e., the extent to which the NGO incorporates firms' profits into its decision making) increases. Our results demonstrate that when the NGO is less pragmatic, it should examine the existing market structure to determine whether to target the industry or the regulatory body. However, as the pragmatism of the NGO increases, the NGO should increasingly leverage the competition between firms to ensure that a replacement is available to consumers. We examine multiple extensions including varying the competition dynamics, the NGO targeting both the industry and the regulatory body, the time discounting of replacement costs, and a firm potentially lobbying to counteract an NGO's activism. We show that the potential for a firm to lobby can benefit consumers by motivating the NGO to exert more effort and increase the market sensitivity to a substance, thereby forcing the firm to replace.

Keywords: nongovernmental organizations; environmental regulations; substances of concern; public politics; private politics; game theory (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (25)

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