National Culture and Internal Carbon Pricing

ABSTRACT Drawing on Williamson’s (2000) framework, this study examines how national culture shapes firms’ ICP adoption decisions using 11,529 firm-year observations from 33 countries between 2014 and 2021. We find that firms in more individualistic cultures are less likely to adopt ICP, with this effect operating primarily through formal institutional channels. This cultural influence is stronger in common law countries but weaker in carbon-intensive sectors and nations with strong climate performance. Among environmental policies tested, technology support policies uniquely moderate this adverse effect. Further analyses suggest that although individualism hinders initial adoption, it drives more intensive implementation in certain institutional contexts once adopted. In particular, under mandatory ESG disclosure, firms in individualistic cultures pursue aggressive carbon pricing strategies with multiple ICP types and higher prices. Our results suggest that effective climate policies should be culturally adaptive, working with rather than against embedded cultural values to accelerate ICP adoption and implementation. Data Availability: Data subject to third-party restrictions. JEL Classifications: Q54; Q56; M14.