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Associate Professor of Management

Institutional Environment, Deregulation and Performance

Delmas, Montes, Shimschak. Mandatory Information Disclosure Policies in the Electricity Industry. WP

Policies that emphasize information provision are prominent and expanding, yet their empirical effectiveness remains largely undetermined. We show that mandatory information disclosure programs can influence fuel mix outcomes in the electricity industry. We find that the average proportion of fuel usage attributable to fossil fuels significantly decreases and the average proportion of fuel usage attributable to clean fuels significantly increases in response to disclosure programs. We also find that customer composition significantly impacts disclosure program response. Finally, a distributional analysis suggests that information programs tend to make clean firms cleaner while leaving dirty firms relatively unchanged.

Delmas, M., Russo, M. and Montes, M. 2007 “Deregulation and Environmental Differentiation in the Electric Utility Industry.” Strategic Management Journal. 28(2):189-209.  pdf version of article

This paper analyzes how economic deregulation impacts firms’ change of strategy in the electric utility industry.  We argue that to understand firm strategic change we need to understand firms’ deployment of resources in their institutional context. We find evidence that the deregulation introduced to this historically staid industry has stimulated environmental differentiation strategies for incumbent firms.  In keeping with theories that suggest that differentiation is most likely to succeed where its point of uniqueness is valued by customers, activity consistent with differentiation is greater for utilities that serve states whose populace exhibits a higher level of environmental sensitivity.  We also find that firms with low productive resources were more likely to adopt differentiation strategies. This paper contributes to the resource based view of the firm by highlighting the importance of the institutional context in which resources are deployed.

Delmas, M. and Tokat, Y. 2005. “Deregulation, Efficiency and Governance Structures: The U.S. Electric Utility Sector,” Strategic Management Journal. 26: 441-460. pdf version of article

The business strategy literature offers apparently opposite views of the ability of vertical integration to cope with the uncertainty related to changing regulatory environments. In this paper, we analyze how the process of retail deregulation affects the comparative efficiency of governance structures, which range on a continuum from fully vertically integrated structures to market transactions. Base on the analysis of 177 U.S. electric utilities from 1998 to 2001, our results show that the process of retail deregulation has a negative impact on firms' productive efficiency, as measured using Data Envelopment Analysis. Furthermore, firms that are vertically integrated  into electricity generation, or that rely on the market for the supply of their electricity, are more efficient than firms that adopt hybrid structures combining vertical integration and contracting. This research has important implications because it shows the coexistence of different types of governance structures that cope efficiently with regulatory uncertainty through different mechanisms.

Delmas, M. and Heiman, B. 2001. “Government Credible Commitment in the French and American Nuclear Industry,” Journal of Policy Analysis and Management. 20(3): 434-456. pdf version of article

Backlash against nuclear power, although widespread, affected nuclear power programs differently in the United States than in France owing to their differing institutional setups. This article uses a transaction costs economics approach to examine government credible commitment to the French and American nuclear power industries. Positive political theory sheds light on the comparative institutional environment in each industry. The American combination of fragmented power, little reliance on bureaucratic expertise, an independent judiciary, and opposing interest groups greatly undermines the ability of the U.S. government to credibly commit to the nuclear power industry. In France, despite substantial anti-nuclear interest groups, the impermeability of the institutional setup—no division of power, weak judiciary, and reliance on bureaucratic expertise—effectively prevents activists from influencing policy outcomes.

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Environmental Voluntary Agreements

Delmas, M. and Keller, A. (2005). “Strategic Free Riding in Voluntary Programs: the case of the US EPA Wastewise Program,” Policy Sciences. pdf version of article
Environmental Voluntary Programs (VPs) involving regulatory agencies and industry have emerged as the promise of the future in environmental policy circles. Although the number of these agreements is increasing in OECD countries, there are still concerns about their effectiveness and in particular that free riding behavior may be difficult to avoid within VPs. Free riding occurs when one firm (or individual) benefits from the actions and efforts of another without paying for or sharing the costs. Free riding behavior may undermine the credibility of voluntary agreements and therefore their viability. Our paper focuses on understanding the factors that favor or hamper free riding behavior in VPs. Our analysis is based on the case of the WasteWise program that was established by the U.S. Environmental protection Agency to reduce municipal solid waste and prevent pollution.

Delmas, M. and Marcus, A. 2004. “Firms’ choice of Regulatory Instruments to Reduce Pollution: a Transaction cost approach,” Business and Politics: 6(3), Article 3. pdf version of article

This paper compares the economic efficiency of firm-agency governance structures for pollution reduction using transaction costs economics. Two governance structures are analyzed with the transaction costs approach: command and control regulation (CCR) and negotiated agreements (NAs). We propose that the choice of governance structure depends on the strategies firms pursue given the attributes of their transactions and their market opportunities. The application of transaction cost economics analysis leads to different choices of regulatory instruments. Firms in more mature, stable industries are likely to choose command and control, while firms in new, dynamic sectors are more likely to opt for negotiated agreements. Frequency of transactions is a key factor in firm choice.

Delmas, M. and Terlaak, A. 2002. “Institutional Factors and Environmental Voluntary Agreements: The Cases of the United States, Germany, the Netherlands and France,” Journal of Comparative Policy Analysis. 4(1): 5-29. pdf version of article

Negotiated Agreements (NAs) are arrangements between firms and regulators in which firms voluntarily commit to improve their environmental performance. This paper analyzes the institutional features that facilitate or hamper the implementation of NAs. We illustrate the analysis with case studies on the implementation of NAs in the United States, Germany, the Netherlands, and France. We find that institutional environments that strengthen the regulator’s ability to commit credibly to the objectives of NAs are key for the implementation of the agreements. Fragmentation of power and open access in policymaking reduce regulatory credibility and thus hamper implementation of NAs.

Delmas, M. and Terlaak, A. 2001. “A Framework for Analyzing Environmental Voluntary Agreements,” California Management Review. 43(3): 44-63. pdf version of article

In the 1990s, Environmental Voluntary Agreements (VAs) involving regulatory agencies and industry have emerged as the promise of the future in environmental policy circles. The collaborative mechanisms of VAs can be conducive to the development of innovative solutions, which regulators or firms would have been unlikely to develop alone. From a business perspective, participation in VAs can reduce the burden of regulation, facilitate the communication of environmental improvements, and allow firms to be ahead of competition for environmental products. However, the benefits of participating in VAs can be outweighed by high transaction and administration costs if VAs are not properly designed. This paper discusses when participation in a VA offers strategic opportunities and when joining a VA might turn into a costly enterprise.

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This paper suggests how institutional theory can explain enduring differences in environmental strategies. We propose that differences in how organizations distribute power across their internal corporate departments lead their facilities to prioritize different institutional pressures and thus adopt different management practices. Specifically, we argue that external constituents who interact with particularly powerful corporate departments are more likely to influence facility managers’ decisions. As a result, managers of facilities that are subjected to comparable institutional pressures adopt distinct sets of management practices that appease different external constituents. Using an original survey and archival data obtained for nearly 500 facilities, we find support for these hypotheses. 

Delmas, M. 2005. “An Institutional Perspective on the Diffusion of International Management Standards: the Case of the Environmental Management Standard ISO 14001” WP.

This paper investigates the determinants of the early adoption of the international environmental management standard ISO 14001 using a panel of 84 countries from 1996 to 2002. It analyzes the relationship between firms’ decisions to adopt international management standards and institutional factors. The analysis emphasizes that, in the case of an emerging standard, the potential lack of consensus within the regulatory/institutional environment concerning the value of a new standard could send mixed signals to firms about the standard. The results show that in the early phase of adoption, regulative and normative forces within the institutional environment can work against each other. This study contributes to the institutional theory perspective by offering a more complex specification of the neo-institutional model where institutional forces can compete with each other.

Delmas, M. and Toffel, M. 2004 “Stakeholders and Environmental Management Practices: An Institutional Framework,” Business Strategy and the Environment. 13: 209-222. pdf version of article

Despite burgeoning research on companies’ environmental strategies and environmental management practices, it remains unclear why some firms adopt environmental management practices beyond regulatory compliance. This paper leverages institutional theory by proposing that stakeholders—including regulators, customers, activists, local communities, environmental interest groups, and industry associations—impose coercive and normative pressures on firms. However, the way in which managers perceive and act upon these pressures at the plant level depends upon plant- and parent company-specific factors, including their track record of environmental performance, the competitive position of the parent company and the organizational structure of the plant. Beyond providing a framework of how institutional pressures influence plants’ environmental management practices, various measures are proposed to quantify institutional pressures, key plant-level and parent company-level characteristics, and plant-level environmental management practices.

Delmas, M. 2002. “The Diffusion of Environmental Management Standards in Europe and in the United States: an institutional perspective,” Policy Sciences. 35 (1): 1-119. pdf version of article

ISO 14001, released in 1996, provides the basic framework for the establishment of an Environmental Management System (EMS) that can be audited and certified. ISO is not only an acronym for the International Organization for Standardization, but is also a term that refers to its Greek meaning: ‘equal.’ The main rationale for the creation of ISO 14001 was that its worldwide acceptance should facilitate international trade by harmonizing otherwise diffuse environmental management standards and by providing an internationally accepted blueprint for sustainable development, pollution prevention, and compliance assurance. However, the implementation of ISO 14001 varies significantly across the globe. A significant number of firms have adopted ISO 14001 in Western Europe and Asia. In December 1999, 52% of the 14,106 ISO 14001 certified facilities were located in Western Europe and 36% in Asia. On the contrary, very few American companies have adopted this voluntary standard. U.S. certified facilities accounted for only 4.5% of the total of ISO 14001 certified facilities in the world in December 1999. The U.S. institutional environment seems acting as a deterrent to ISO 14000 adoption as U.S. companies are fearful of the certification process which lays their performance open to public scrutiny. The opposite is true in Europe, where governments have encouraged the adoption of environmental management standards by setting up a trusted certification system and providing technical assistance to potential adopters. This paper offers a conceptual framework to analyze this variation in adoption rates. It is proposed that the regulatory, normative and cognitive aspects of a country’s institutional environment greatly impact the costs and potential benefits of ISO 14001 adoption and therefore explain the differences in adoption across countries. The analysis is supported by data collected from a phone questionnaire to 140 firms in Europe and a questionnaire mailed to 152 firms in the U.S.  

Delmas, M. 2001. “Stakeholders and Competitive Advantage: the case of ISO 14001,” Production and Operation Management. 10(3): 343-358.

This paper integrates a stakeholder perspective into the resource-based view of the firm, to analyze the mechanisms that link the adoption of the international Environmental Management Standard ISO 14001 to firms’ competitive advantage. This paper shows that the perceived competitiveness impact of the standard depends mostly on the involvement of firms’ external stakeholders (distributors, customers, community members, and regulatory agencies) in its design. ISO 14001 is a process standard, and it is difficult for stakeholders to get credible information on the effectiveness of the standard if they are not involved in its design. Stakeholders’ involvement in a firm’s ISO 14001 standard becomes a valuable organizational capability, which is difficult to imitate by competitors. The analysis is supported by primary data collected from a questionnaire mailed to 152 firms, resulting in 55 observations representing 30% of the total number of firms certified in the U.S. in August 1998.

Delmas, M. 2000. “Barriers and Incentives to the adoption of ISO 14001 in the United States,” Duke Environmental Law and Policy Forum. Fall: 1-38. pdf version of article

The purpose of this paper is to shed light on why ISO 14001 has been less attractive to U.S. firms compared to other regions, such as Asia and Western Europe. We start with an assumption that because ISO 14001 certification is voluntary, firms will only seek certification where it is in their best economical interest, i.e. the benefits of adopting ISO 14001 certification outweigh the costs. Based on such an assumption, the paper identifies the benefits and costs for firms, specifically U.S. firms, adopting ISO 14001 certification. It also describes the practical barriers and driving forces associated with the adoption of ISO 14001 generally. Specifically, the paper proposes a conceptual framework to explain the factors that either hamper or facilitate the adoption of an EMS standard in a specific institutional setting.  For example, it analyzes which elements of the U.S. institutional and business environment impact the cost of ISO 14001 certification, and describes how ISO 1400 certification can become a resource that might provide a competitive advantage to U.S. firms. This analysis is supported by primary data collected from a questionnaire mailed to a representative sample of ISO 14001 certified facilities in the United States.

Delmas, M. 1999 “Exposing Strategic Assets to Create New Competencies: The Case of Hazardous Waste Management Industry,” Industrial and Corporate Change vol. 8(4) p. 635-672. pdf version of article

This paper presents a model that complements the research stream of transaction cost economics with the dynamic capabilities approach. The paper shows that, even though technological alliances involving specific assets deployed in emerging industries are exposed to high transaction costs, they possess attributes that make them attractive. First, they facilitate the creation of tacit competencies and second, they reduce the uncertainty arising from technological innovation and regulatory changes.

Delmas, M. 2002. “Innovating against European rigidities: Institutional Environment and Dynamic Capabilities,” Journal of High Technology Management Research: 13(1): 18-42.

This paper use data on managers' perception of factors hampering innovation from 6,860 European firms. It demonstrates how perceived institutional factors such as rigidities and distortions that hamper the functioning of markets impact innovative strategies. Managers will direct their strategies toward innovation in an environment that provides them with access to complementary assets. Conclusions drawn from this perspective call for policies that will take into account the system in which innovation can take place.

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