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Uncertain R&D and the Porter Hypothesis

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  • Popp David

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    (Syracuse University)

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    Abstract

    Ever since Michael Porter proposed that environmental regulations can improve competitiveness, much economic research has examined the potential for such outcomes. Attempts to model Porter hypothesis outcomes in a way consistent with neoclassical economics have focused on things such as strategic relationships between firms, moral hazard problems, and economies of scale. In this paper, I offer a simpler alternative. The results of any R&D project are uncertain. Calibrating a simple model of induced R&D with uncertainty so that the expected value of research is only positive with environmental policy, I find that between 8 and 24 percent of simulations result in cases where post-regulation profits are higher than pre-regulation profits. This result is consistent both with Porter finding specific cases with complete innovation offsets and with macro-level findings that environmental policy is not costless. I conclude by discussing the implication of these results for environmental policy and future research.

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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 4 (2005)
    Issue (Month): 1 (June)
    Pages: 1-16

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    Handle: RePEc:bpj:bejeap:v:contributions.4:y:2005:i:1:n:6

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/bejeap

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    Cited by:
    1. Ambec, Stefan & Cohen, Mark & Elgie, Stewart & Lanoie, Paul, 2010. "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?," TSE Working Papers 10-215, Toulouse School of Economics (TSE).
    2. Apergis, Nicholas & Eleftheriou, Sofia & Payne, James E., 2013. "The relationship between international financial reporting standards, carbon emissions, and R&D expenditures: Evidence from European manufacturing firms," Ecological Economics, Elsevier, vol. 88(C), pages 57-66.
    3. Ziesemer, Thomas & Kriechel, Ben, 2007. "The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption," MERIT Working Papers 024, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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