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The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption

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  • Kriechel, Ben

    (Maastricht University)

  • Ziesemer, Thomas

    (Maastricht University)

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 show that times of adoption are earlier the higher the non-adoption tax. The environmental tax turns the preemption game with low profits into a game with credible precommitment yielding high profits (pro-Porter). If there is a precommitment game without environmental taxes, the introduction of a tax leads to lower profits (anti-Porter). An evaluation of the empirical literature indicates that the Porter hypothesis holds even for profit-maximizing firms under multiple market imperfections such as imperfect competititon, X-inefficiency, and agency costs. These are more likely to be present in sectors with large firms. In many case studies that we evaluate, though, we detect an element of explicit or implicit subsidies for environmentally friendly behaviour, which is in line with Pigovian policies.

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Bibliographic Info

Paper provided by Maastricht University in its series Open Access publications from Maastricht University with number urn:nbn:nl:ui:27-19334.

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Date of creation: 2009
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Publication status: Published in Economics of Innovation and New Technology (2009) v., p.-
Handle: RePEc:ner:maastr:urn:nbn:nl:ui:27-19334

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Web page: http://www.maastrichtuniversity.nl/web/Home.htm

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References

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  1. Armin Schmutzler, 1998. "Environmental Regulations and Managerial Myopia," Working Papers 9903, University of Zurich, Socioeconomic Institute.
  2. Stefan Ambec & Paul Lanoie, 2007. "When and why does it pay to be green?," Cahiers de recherche 07-04, HEC Montréal, Institut d'économie appliquée.
  3. 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.
  4. 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.
  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.
  6. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
  7. 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.
  8. Smith, V Kerry & Walsh, Randy, 2000. " Do Painless Environmental Policies Exist?," Journal of Risk and Uncertainty, Springer, vol. 21(1), pages 73-94, July.
  9. Reinganum, Jennifer F., . "On the Diffusion of New Technology: A Game Theoretic Approach," Working Papers 312, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Shunsuke Managi & SJames J. Opaluch & Di Jin & Thomas A. Grigalunas, 2005. "Environmental Regulations and Technological Change in the Offshore Oil and Gas Industry," Land Economics, University of Wisconsin Press, vol. 81(2).
  11. 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.
  12. 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.
  13. Martin Klein & Jaqueline Rothfels, . "Can Environmental Regulation of X-Ineffecient Firms Create a -Double Dividend-?," IWH Discussion Papers 103, Halle Institute for Economic Research.
  14. Shunsuke Managi, 2004. "Competitiveness and environmental policies for agriculture: testing the Porter hypothesis," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, vol. 3(3), pages 310-324, January.
  15. 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.
  16. 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.
  17. Greaker, Mads, 2003. "Strategic environmental policy; eco-dumping or a green strategy?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 692-707, May.
  18. Richard Lajeunesse & Paul Lanoie & Michel Patry, 2001. "Environmental Regulation and Productivity: New Findings on the Porter Analysis," CIRANO Working Papers 2001s-53, CIRANO.
  19. Simpson, R. David & Bradford, Robert III, 1996. "Taxing Variable Cost: Environmental Regulation as Industrial Policy," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 282-300, May.
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Citations

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Cited by:
  1. Wilfried Ehrenfeld, 2012. "Towards a Theory of Climate Innovation - A Model Framework for Analyzing Drivers and Determinants," IWH Discussion Papers 1, Halle Institute for Economic Research.
  2. George van Leeuwen & Pierre Mohnen, 2013. "Revisiting the Porter Hypothesis: An Empirical Analysis of Green Innovation for the Netherlands," CIRANO Working Papers 2013s-02, CIRANO.
  3. Prabal Roy Chowdhury, 2011. "The Porter hypothesis and hyperbolic discounting," Economics Bulletin, AccessEcon, vol. 31(1), pages 167-176.
  4. Kuckshinrichs, Wilhelm & Kronenberg, Tobias & Hansen, Patrick, 2010. "The social return on investment in the energy efficiency of buildings in Germany," Energy Policy, Elsevier, vol. 38(8), pages 4317-4329, August.
  5. Simone Borghesi & Giulio Cainelli & Massimiliano Mazzanti, 2012. "Brown Sunsets and Green Dawns in the Industrial Sector: Environmental Innovations, Firm Behavior and the European Emission Trading," Working Papers 2012.03, Fondazione Eni Enrico Mattei.
  6. Giulio Cainelli & Massimiliano Mazzanti & Simone Borghesi, 2012. "The European Emission Trading Scheme and environmental innovation diffusion: Empirical analyses using Italian CIS data," Working Papers 201201, University of Ferrara, Department of Economics.

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