What Drives Firms to Act Positively on Environmental Quality Overtime? Evidence Based on Panel Data from Sri Lankan Agri-Food Processing Sector

Abstract

The effect of relative changes occurred to the system of economic incentives, which comprised of market-based, regulatory, and liability incentives as well as environmental altruism, over time on firms' private actions towards environmental quality was investigated using the special case of adoption of solid waste management practices (SWMPs) recommended by the Ministry of Environment by agri-food processing firms in Sri Lanka. The panel data gathered from a cross section of firms (n=146) in Stage I (2009) and Stage II (2011/ 12) by means of in-depth personal interviews supported by a structured questionnaire from environmental managers/owners of firms were used, separately, with Confirmatory Factor Analysis techniques to derive an index for each individual inventive for each stage. These indices were, in turn, modelled with a Count Data Analysis taking the firm's level of adoption of SWMPs as the dependent variable. The results suggest that the level of adoption of SWMPs, on average, has increased over time (/.e. shift o f Mean from 1.25 in Stage I to 1.86 in Stage If], and irrespective of time, the financial implications/cost, technical efficiency and liability laws had a significant impact on firms' private actions on environmental quality. The outcome, overall, highlights the positive role of market-based incentives alongside regulation, thus, emphasizes the importance of bringing the current, largely single-sided public regulatory regimes towards co-regulation to ensure firms' participation on up keeping environmental quality.