Does Industry Self-Regulation Reduce Accidents? Responsible Care in the Chemical Sector

Abstract

Our study, examining the impact of Responsible Care in the US chemical manufacturing sector, is the first to test the impact of self-regulation program on industrial accidents. RC requires members to adhere to codes of conduct on production safety and pollution prevention. Using our author-constructed database of 1,867 firms that own 2,963 plants between 1988 and 2001, we instrument for firms’ self-selection into RC using pollution-related regulatory pressure on firms that influences their probability of joining RC, but not plant-level accidents. We find that RC reduces the likelihood of accidents by 2.99 accidents per 100 plants in a given year or by 69.3%. RC also reduces the likelihood of process safety accidents and accidents related to violations of RC codes by 5.75 accidents per 100 plants in a given year or by 85.9%. Alternatively, estimates using Propensity Score Matching methods indicate that RC reduces the likelihood of accidents by 0.66 accidents per 100 plants in a given year. We conclude that the RC-led reduction in the likelihood of accidents contributes to economically significant averted losses, with savings, even based on the smaller PSM estimates, totaling $180 million per year.

Keywords: Corporate Social Responsibility, Industry Self-Regulation, Industrial Accidents, Environmental and Health Safety, Chemical Industry

JEL Classification: Q53, Q58, L51, L65, D21