Managing potentially hazardous substances from the firm and NGO perspective [electronic resource]
Keywords: Management Science and Engineering

As public awareness of environmental hazards increases, a growing concern for corporations is the potential negative environmental impact of their products and the chemicals those products contain. When a substance within a product is identified as potentially hazardous (e.g., bisphenol-A (BPA) in baby bottles and triclosan in soaps and toothpastes), without regulations in place it is often difficult for a firm to financially justify the proactive replacement of the substance. From the perspective of non-governmental organizations (NGOs), groups such as ChemSec and Greenpeace play an active role in removing potentially hazardous substances from commercial use by either targeting firms with negative press or by petitioning regulatory bodies to increase the likelihood of regulation. An NGO interested in influencing firms to replace a potentially hazardous substance must develop a strategy for how to best utilize its often limited resources. This dissertation investigates the optimal decisions of both firms and NGOs when a potentially hazardous substance is discovered. In Chapter 2, we study the firm's strategy when a potentially hazardous substance is identified. A firm's decisions are complicated by uncertainty in substance risk, regulations, and market sensitivity, as well as the existence of external stakeholders such as NGOs who may want the firm to develop a replacement substance. We investigate the timing and intensity of the firm's investments to replace a substance. A two-stage dynamic program is used to model the problem. Our results suggest that when a potentially hazardous substance is identified, a firm should always invest in developing a replacement, with the investments increasing in market sensitivity and, in general, time. How the firm's decisions change with respect to firm size is more complex, as whether the firm is more or less aggressive with its investments (compared to other firm sizes) can depend on when the firm makes its decisions and the firm's implementation costs. In addition, the firm's development and implementation strategies may not be aligned; high costs and the threat of immediate regulation can cause a discrepancy in policy between the two stages. Our findings for an exploratory competition-based model suggest that if the competing firms are homogeneous in size, then predicting the firms' behaviors is much more difficult; this is especially true early in the planning horizon. In Chapter 3, we investigate the role NGO's play in removing a potentially hazardous substance from commercial use. We analyze an NGO's decision of who to target --- the industry or the regulatory body --- and how much effort to exert. We consider the perspectives of both an antagonistic NGO that maintains an arms-length relationship with firms and a pragmatic NGO that takes into consideration firm costs when making its decisions. A game-theoretic, two-stage model is used to model the problem. Our results suggest that an antagonistic NGO's optimal strategy is usually to induce all firms to replace the substance, with the only decision being whether to target the industry or the regulatory body. Conversely, a pragmatic NGO's optimal strategy is more complex. Depending on the market structure and the consumer benefit from replacing a substance, the NGO may not always want to induce the entire industry to replace the substance. In particular, if there exists a dominant firm in the market and the consumer benefit from replacing a substance is high, then a pragmatic NGO faces a difficult tradeoff between reducing firm costs and maximizing consumer benefit. Finally, in Chapter 4, we conclude by overviewing the findings of the dissertation and by discussing possible areas of future research.