Firm ownership patterns and motives for voluntary pollution control

From the viewpoint of standard theory, firms have sometimes seemed to overcontrol pollution. However, Gordon (NBER Working Paper, 1990) and others have noted that the more diversified investors are the greater the degree of internalization of externalities. This paper explores the implications of diversification for the firm's choice of pollution in comparison with alternative explanations of voluntary pollution control, such as profit-seeking through regulatory influence, and altruism. The paper also addresses issues arising from the spatial aspects of pollution, and the relationship between stockholder and managerial incentives for pollution control.