Journal of Environmental
Economics and Management 45 (2003) 377–393
A theoryof environmental risk disclosure
Bernard Sinclair-Desgagne´ a,b,* and Estelle Gozlanb,c
aCIRANO and HEC Montre´al, Canada
bNSERC Industrial Chair on Site Remediation and Management, Polytechnique-Montre´al, Canada
cINRA, FranceReceived 26 February2001; revised 3 September 2002
AbstractThe regulation of environmental risks increasinglyemphasi zes the
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awareness and empowerment of
stakeholders. The success of this approach, however, seems to depend cruciallyon the qualityof
environmental disclosures. In this paper we investigate the amount and qualityof the information that
would be voluntarilyde livered to some stakeholder by a potential polluter. We find that information maybe hazier when the stakeholder is confident (or naive) a priori, the cost of analyzing the received reports
increases little with their complexity, or a polluter’s net expected payoff from undertaking an industrialactivitythat would turn out to be unsafe is small. A worried stakeholder and a low cost of producing more
accurate figures, on the other hand, favor disclosure of high-qualityinfor mation. Bydelivering information
of verygoo d quality, safe firms can set themselves apart more easily from dangerous ones the higher the
relative ex post payoff from their current industrial activity. Implications of this framework for the scope
and design of public programs of environmental disclosure are brieflyexami ned.
r 2003 Elsevier
Science (USA). All rights reserved.
JEL classification: I18; D82; C72
Keywords: Environmental reporting; Signalling; Persuasion games; Informational regulation
1. Introduction
The regulation of industrial risks to human health and the environment relies increasinglyon
making relevant information available to all interested parties. Examples of recent actions in this
direction include government-sponsored right-to-know programs, blacklisting of notorious
*Corresponding author. Bernard Sinclair-Desgagne´ , CIRANO, 2020 UniversityStreet, 25th floor, Montre´ al, Que´ ,
Canada H3A 2A5. Fax: (514) 985-4039.
E-mail address: bsd@cirano.qc.ca (B. Sinclair-Desgagne´ ).
0095-0696/03/$ - see front matter r 2003 Elsevier Science (USA). All rights reserved.
doi:10.1016/S0095-0696(02)00056-6
polluters bynon-governmental organizations, the US Securities and Exchange Commission
rulings that environmental liabilities and risks be publiclydisclosed, and the spreading corporate
practice of voluntaryenvironmental reporting. It is widely believed that such measures constitute
an effective and efficient wayto have polluters internalize the potential harms theymight inflict on
third parties.1 For most firms naturallyseek the goodwill of neighboring communities, employees,
shareholders, financial institutions, local governments and citizens in general, especiallyif losing
that goodwill can bear significant financial consequences. Furthermore, enabling all stakeholders
to activelyparticipate in enforcing environmental regulation mayalso lower the administrative
and political costs of enforcement.
To be successful, however, a regulation of industrial risks that is based on information
disclosure calls for at least two preconditions. First, the interested parties must have the abilityto
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