Institution building in an emerging industry: lessons from the carbon offset industry.

Abstract

Industry creation requires the building of institutions that support and enable economic exchange. Among the many actors involved in building these institutions are firms. The three papers of this dissertation investigate how firms are involved in the process of building these institutions in the context of the global carbon offset industry from 2003 to 2011. In the first paper I draw on the innovation management literature to contrast two ways in which the public and private sector can interact in the rulemaking process. I illustrate these differences by comparing the development of rules in two different carbon offset systems: the Clean Development Mechanism (CDM) and the Climate Action Reserve. In the second paper, I test whether the 152 firms among the population of 1599 firms operating in the CDM benefit from choosing to help build the rules that are needed for all firms to operate in the CDM. I find that, in addition to providing a collective good for the entire industry, these institution-building activities provide firms visibility among potential customers. In the final paper, I find that institution-building actions in the CDM tend to signal the presence of potential competitors, which deters local industry growth among the 91 developing countries which host carbon offset projects. Prior commitment and capabilities of local country governments positively moderate this relationship. Collectively, these findings demonstrate the important role of firms in shaping the institutions that support industry emergence and influence industry evolution.