When new information that firms within an industry are creating a societal problem (i.e., a negative externality) is widely publicized, but the solutions to this problem are uncertain, under what conditions are these firms able to use transnational private standards to avert new government regulation?
Knowledge of a societal problem’s existence often precedes knowledge on how best to solve it. When policymakers are pressured to address a new problem resulting from the activity of firms, but there is uncertainty on how to effectively solve it, averting government intervention is difficult. Although both firms and governments may favor industry self-regulation, to satisfy their constituencies governments must act rapidly. Conversely, firms are likely to resist attempts to enact costly, unproven solutions.
I hypothesize that under these conditions, industry self-regulation is more likely (a) as the political insulation of policymakers decreases, and (b) when firms create a transnational private standard to address the issue.
By comparing industry lobbying over liquid laundry detergent pod regulation in the EU and US from 2010 to 2016, I find support for my hypotheses. Under conditions of uncertainty, industry lobbying for self-regulation is more likely to succeed when industries create private transnational standards that go beyond what governments request. In addition, I find evidence that a decrease in the political insulation of policymakers is more likely to lead to self-regulatory solution as corporate political donations ‘buy’ firms more time to negotiate with policymakers.