This paper examines green alliances between environmental groups and polluting firms, which have become more common in the last decades, and how they affect policy design. We first show that the activities of regulators and environmental groups are strategic substitutes, giving rise to free-riding incentives on both agents. Nonetheless, the find that the presence of the environmental group alone yields no welfare benefit, as firms have no incentives to alter their abatement decisions when they do not face regulation. Therefore, the introduction of environmental groups yields a welfare gain when firms are already subject to regulation, suggesting that the former cannot completely replace environmental policy.
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