We provide an explanation for voluntary overcompliance, the phenomenon in which firms voluntarily choose to overcomply with environmental regulations. In our model, a polluting firm faces a rent-seeking contest with an environmental group. By making a small concession beforehand, i.e. by overcomplying voluntary, the firm lowers the stake the environmental group has in the rent seeking contest, which lowers the group's lobbying effort in that contest. Voluntary overcompliance increases social welfare, yet the firm undersupplies overcompliance from a welfare point of view. An increase in the effectiveness of lobbying of the environmental group, increases the level of overcompliance.
- Voluntary overcompliance