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This paper analyses the conditions under which a group of firms is incentivised to sign a Voluntary Agreement (VA) to control polluting emissions even in the presence of free-riding by other firms in the industry. The authors consider a policy framework in which firms in a given industry decide whether or not to sign a VA proposed by an environmental regulator. They identify the features that a VA should possess in order to incentivize firms to participate in the VA and to enhance its economic and environmental effectiveness.
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