Unraveling the joint effect of firm and stakeholder pro-environmental engagement on firm economic rewards: an application to waste management services

Purpose This paper aims to examine whether the pro-environmental engagement (PEE) of firms in response to the environmental expectations of stakeholders increases firm market power and whether the level of stakeholder PEE can counterbalance this effect. Design/methodology/approach This study draws on stakeholder theory and the co-production paradigm. The stakeholder perspective provides a theoretical basis for the increase in market power of organizations that improve their PEE, while co-production paradigm provides a theoretical foundation for the negative impact of stakeholder PEE on market power. The empirical evidence is derived from waste management services in Italy. The authors use a stochastic frontier approach to determine firm market power indices in relation to firm and stakeholder PEE. Findings The results confirm that market power increases when stakeholder expectations are met, while stakeholder commitment (mainly service recipients) challenges this effect. Furthermore, the findings suggest the existence of a self-reinforcing mechanism, as organizational efforts tend to keep pace with the empowerment of service recipients. Originality/value The originality of the study lies in the use of market power as a performance parameter, which has the advantage of being directly related to the acquisition of monopoly rents. In this context, the sustainability efforts of firms have strategic valence, as they allow them to approach a monopolistic condition, while the co-production efforts of service recipients can mitigate this socially undesirable outcome.