On the basis of a simple decision-making model we show that less companies participate in environmental management systems standards in a pure market economy than it is socially desirable. By granting subsidies to participants governments can remedy this market failure. Within the framework of the decision-making model we develop a subsidy scheme which is able to induce those companies to join EMAS or ISO 14001 for which this is socially optimal. Finally, the findings of the model are translated into operational rules and compared with the German practice of funding participation in EMAS and ISO 14001. One central result of this comparison is that the prevalent approach in Germany to provide more subsidies for EMAS registration than for ISO 14001 certification may lead to an inefficient allocation of resources.