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The environmental Porter hypothesis: theory, evidence, and a model of timing of adoption

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Author Info
Ben Kriechel
Thomas Ziesemer

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Abstract

The Porter hypothesis postulates that the costs of compliance with environmental standards may be offset by adoption of innovations they trigger. We model this hypothesis using a game of timing of technology adoption. We will show that times of adoption will be earlier if the non-adoption tax is higher. The environmental tax will turn the preemption game with low profits into a game with credible precommitment generating higher profits (pro-Porter). If there is a precommitment game without environmental taxes, the introduction of a tax will lead to lower profits (anti-Porter). An evaluation of the empirical literature indicates that the Porter hypothesis will hold even for profit-maximizing firms under multiple market imperfections such as imperfect competition, X-inefficiency, and agency costs. These are more likely to be present in sectors with large firms. In many case studies that we have evaluated, though, we detected an element of explicit or implicit subsidies for environmentally friendly behaviour, which is in line with Pigovian policies.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 18 (2009)
Issue (Month): 3 ()
Pages: 267-294
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Handle: RePEc:taf:ecinnt:v:18:y:2009:i:3:p:267-294

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Related research
Keywords: environmental policy; strategic trade theory; technology adoption; Porter hypothesis;

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References listed on IDEAS
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  2. Robert Ayres, 1994. "On economic disequilibrium and free lunch," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(5), pages 435-454, October. [Downloadable!] (restricted)
  3. Xepapadeas, Anastasios & de Zeeuw, Aart, 1999. "Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital," Journal of Environmental Economics and Management, Elsevier, vol. 37(2), pages 165-182, March. [Downloadable!] (restricted)
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  4. Thomas Roediger-Schluga, 2003. "Some Micro-Evidence on the "Porter Hypothesis" from Austrian VOC Emission Standards," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 34(3), pages 359-379. [Downloadable!] (restricted)
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  5. Eli Berman & Linda T. M. Bui, 2001. "Environmental Regulation And Productivity: Evidence From Oil Refineries," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 498-510, August. [Downloadable!] (restricted)
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  6. Martin Klein & Jaqueline Rothfels, . "Can Environmental Regulation of X-Ineffecient Firms Create a -Double Dividend-?," IWH Discussion Papers 103, Halle Institute for Economic Research. [Downloadable!]
  7. Palmer, Karen & Oates, Wallace E & Portney, Paul R, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-32, Fall. [Downloadable!] (restricted)
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  9. Reinganum, Jennifer F, 1981. "On the Diffusion of New Technology: A Game Theoretic Approach," Review of Economic Studies, Blackwell Publishing, vol. 48(3), pages 395-405, July. [Downloadable!] (restricted)
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  10. Abay Mulatu & Raymond J.G.M. Florax & Cees A.A.M. Withagen, 2001. "Environmental Regulation and Competitiveness," Tinbergen Institute Discussion Papers 01-039/3, Tinbergen Institute. [Downloadable!]
  11. Ada Wossink & Frank Wefering, 2003. "Hot spots in animal agriculture, emerging federal environmental policies and the potential for efficiency and innovation offsets," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, vol. 2(3), pages 228-242, January. [Downloadable!] (restricted)
  12. Hoppe, Heidrun C, 2002. "The Timing of New Technology Adoption: Theoretical Models and Empirical Evidence," Manchester School, University of Manchester, vol. 70(1), pages 56-76, January. [Downloadable!] (restricted)
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  16. Armin Schmutzler, 2001. "Environmental Regulations and Managerial Myopia," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 18(1), pages 87-100, January. [Downloadable!] (restricted)
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  17. Richard Lajeunesse & Paul Lanoie & Michel Patry, 2001. "Environmental Regulation and Productivity: New Findings on the Porter Analysis," CIRANO Working Papers 2001s-53, CIRANO. [Downloadable!]
  18. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May. [Downloadable!] (restricted)
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