Title: Firm Participation in Morally Contested Markets
Description: Organizational participation in morally contested markets, that is, markets surrounded by controversy reflecting values-led beliefs, is an understudied topic (Zelizer, 1978, 1979; Healy, 2006; Quinn, 2008; Anteby, 2010). The extant research has tended to focus on the genesis and evolution of contestation toward certain categories of trades, to the relative neglect of attention toward the responses of organizations, to such contestations. Yet the market exchange outcomes of organizations hinge not only upon social relations (Granovetter, 1985; Uzzi 1996, 1997) and power distribution (Blau, 1964; Emerson, 1976) but also upon the legitimacy benefit that exchange might render (Jensen, 2006). In deciding whether and how to engage in markets associated with debated legitimacy, organizations establish and express their meaning, status and identity (Phillips and Owens, 2004; Jensen, 2010). Particularly in markets that are morally contested, firms inevitably balance two competing sources of institutional demands: the rationale for economic efficiency, and the defense of values and norms.

In weighing and negotiating these interests, how do firms behave and choose in response to institutional and organizational factors? Meanwhile, organizations on either side of the market act as critical forces to enhance or challenge a market's capacity to survive (Fligstein and Dauter, 2007; King and Pearce, 2011); given this, how do the organizational participation decisions matter for the institutionalization of a new, morally convicted market as a whole? This dissertation studies organizations as customers, by looking at factors that facilitate or impede their purchasing decisions in morally contested markets. I examine firms' differing decisions toward participation in one such market, the carbon credit trade, across several countries displaying varying cultural attitudes. I study these choices at the nascent, unstable stage, before the carbon market has become institutionalized as a viable solution strategy responding to global environmental challenges. I argue that firms construct the proper scope of commercial activity via channels including managers' individual mental accounting as well as social norms and law, and that all channels can be understood as culturally dependent.

Building upon cross-national qualitative comparative work of morally contested markets (Zelizer, 1979), I empirically link market participation patterns to dissimilarities originated from the various national institutional environments surrounding firms (Healy, 2006). I look at organizational structural and strategic factors that affect firms' participation in morally contested markets, in order to understand how cultural norms matter for firms' choices. The prevailing norms and values in the country where a firm operates may be deemed to matter, either because of a firm's reputational concerns vis-à-vis its customers; or because of firm internal rationales, e.g. the top management also shares those values, or the firm wants to appeal to current or potential employees who share those values. By looking at whether cultural values matter more for firms that are more retail oriented, or are more inclined to retain employees, or have a chief executive officer with educational background in economics, I disentangle the internal and external mechanisms.

The empirical context for understanding the organizational and institutional dynamism of morally contested markets is the carbon market. By facilitating the exchange of carbon credits, the carbon market authorizes an entity to achieve greenhouse gas reduction goals by exchanging part of its obligation with another party, which is believed to both lower the costs of mitigation and increase the efficiency of emission reductions (Sandor, Walsh and Marques, 2002; Stern, 2006). Since its debut in 2005, however, the idea of carbon trading has been much contested, based on claims that the environment is a sacred good and that providing a market for pollution allows the wealthy to evade their responsibilities (Caney and Hepburn, 2011). The carbon market, then, offers a fitting setting for my study in three ways: First, the market prompts firms to make a distinct choice, between efficiency and norm. Firms reducing their carbon outputs choose either to trade on-market, which is a more efficient solution but violates the cultural notion of a "non-tradeable" environment, or to reduce in-house, which is perceived as a less tainted way of emission abatement, yet a more costly one.

Second, the carbon market purports to respond to the issues of global warming and climate change, which has become increasingly recognized as a global priority. Examining the carbon market can elucidate how organizations across nations differ their choices on carbon trading, based on the given organization's headquartered country values and norms. Third, this carbon market allows for directly examining the values effect, by offering a relatively clean-cut measure for the efficiency gains that the market mechanism would provide. My results suggest evidence of a strong cultural norm effect that can indicate whether firms are likely, or not likely, to engage in the carbon credit market. Firms located in countries where people more frequently voice skepticism toward market mechanisms in environmental policy are less likely to engage in the carbon credit market. The channel is specific to cultural norms about environmental-economic trade-offs and not to norms about environmental concerns in general.

Moreover, by looking at firm-level factors such as consumer orientation, CEO educational background, and sector-level factors such as unemployment rate, I highlight the mechanisms through which cultural values are demonstrated. The result suggests that for firms' choices, cultural values and norms do matter, for reasons based in rationales that are both internal and external. Beyond illuminating such a values effect that influences the choices firms make, this work reveals the nuanced ways in which values-based beliefs impact corporate behavior by examining the interplay between cultural norms and countervailing sources of legitimacy, namely, regulatory forces as well as other firms' decisions or experiences. The results suggest that while firms regulated to reduce emissions have a higher rate of carbon market participation, the rate difference between regulated and unregulated firms is evidently larger in countries where the idea of using the market to deal with environment problems is perceived as less acceptable.

In the meantime, there is little to no evidence that similar or connected organizations' decisions toward participation in the contested market engenders a positive spillover that reinforces the values effect. Both results hint at the unique properties of the values effect as it tends to separates "good" firms from "bad" firms, according with the extent to which corporate behaviors conform to the moral ideals. My investigation of the carbon market among European firms contributes to the institutional literature by highlighting the importance of specific national institutions in particular organizational domains (Vasudeva, Spencer and Teegen, 2012) as well as interrelatedness between institutional theory and strategic perspectives in the context of firm market participation decisions (Oliver, 1991). By assessing the effect of national cultural values in legitimating these nascent markets while taking into account the opportunity cost of not using the market, my dissertation sheds light on some of the conditions that determine when and how much concerns about legitimacy, controlling for efficiency, loom large in market behaviors, as well as which organizational and institutional mechanisms are involved.

This dissertation also contributes a new framework for thinking about morally contested markets in responding to the relative lack of studies on what happens before the institutions become institutionalized (Fligstein and Dauber, 1989), by connecting and extending literature on institutionalization. One of institutional theory's main ideas is that the legitimacy of practices within an organizational field rises with the level of their diffusion in the field (DiMaggio and Powell, 1983; Tolbert and Zucker, 1983). By studying the values effect in the nascent stage of institutional development, my dissertation reveals a necessary but often understated condition for extant explanations of institutional shifts (Schneiberg and Soule, 2005), that is, for the instrumental and normative rationality of an institutional project to occupy the same domain which implies the capacity to reinforce each other. In cases where the rationale of economic efficiency is separated from normative rationality by strict moral codes, these moral challenges not only impede buy-in, but also prevent the enactment of the diffusion processes as well as shifts in cultural framings and thus halted the dynamism that usually underlies the spread of practices and social changes.

Identifying whether a market institution is embedded within the right social environment helps to shed light on the divergent institutional trajectory that new markets follow. This research has implications for corporate reputation management. A key aspect of corporate social responsibility is dialogue with and responsibilities to diverse stakeholders that project conflicting demands and raise difficulties for companies seeking to meet those demands. The case of the carbon market poses challenges and interesting trade-off for companies intending to pioneer in innovative but controversial CSR instruments. This paper also aims to arrive at implications for the design of the carbon market and policy making. Many observers take the view that the answer to invigorating the carbon market lies in identifying ways to increase demand or reduce supply of carbon credits. What I show and suggest is that, the dissolution of moral restrictions on the carbon market can be seen as one of the most important processes among attempts to institutionalize this currently quasi-taboo market, and should be part of the on-going policy debate.