FACULTY AND RESEARCH

Recently, regulators worldwide required or proposed to require firms to disclose their emission information. To better evaluate the potential effects and the efficacy of such man- dates, I propose an analytical model to investigate firms’ emission investment and disclosure decisions. In the model, two firms engage in Cournot competition in a market where cus- tomers may dislike emissions associated with the products. Disclosing the emission intensity level not only indicates the firm’s environmental performance but also reveals how firms ex- ploit the environment in their production process. The results show the potential existence of different disclosure equilibria, which implies different disclosure patterns in different in- dustries. Nondisclosure is not an unambiguous signal for high emissions. Furthermore, conducting and revealing emission-abatement investment changes firms’ disclosure decisions regarding their emission level. Because of this effect, firms consider subsequent disclosure strategies when making investment decisions. I further identify that disclosure mandates may have an adverse effect on firms’ abatement incentives and even their total emissions.