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The Porter Hypothesis and Hyperbolic Discounting

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  • Roy Chowdhury, Prabal

Abstract

We examine pollution-reducing R&D by a monopoly firm producing a dirty product. In a dynamic framework with hyperbolic discounting, we establish conditions under which the Porter hypothesis goes through, i.e. environmental regulation increases R&D, thus reducing pollution, as well as increasing firm profits. This is likely to hold whenever R&D costs are at an intermediate level, and the planning horizon of the firms is large.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23647.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:23647

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Keywords: Porter hypothesis; abatement tax; R&D; hyperbolic discounting;

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  1. 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.
  2. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 443-77, May.
  3. Mohr, Robert D., 2002. "Technical Change, External Economies, and the Porter Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 158-168, January.
  4. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
  5. Indrani Roy chowdhury, 2009. "Incentives for Green R&D in a Dirty Industry under Price Competition," Economics Bulletin, AccessEcon, vol. 29(3), pages 2265-2274.
  6. Ben Kriechel & Thomas Ziesemer, 2009. "The environmental Porter hypothesis: theory, evidence, and a model of timing of adoption," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(3), pages 267-294.
  7. Matthew Rabin & Ted O'Donoghue, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 103-124, March.
  8. 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, American Economic Association, vol. 9(4), pages 119-132, Fall.
  9. 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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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, Toulouse School of Economics (TSE) 10-215, Toulouse School of Economics (TSE).
  2. Indrani Roy Chowdhury & Sandwip K. Das, 2011. "Environmental regulation, green R&D and the Porter hypothesis," Indian Growth and Development Review, Emerald Group Publishing, Emerald Group Publishing, vol. 4(2), pages 142-152, September.

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