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

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  • Ziesemer, Thomas

    ()
    (Maastricht University, UNU-MERIT)

  • Kriechel, Ben

    ()
    (Maastricht University, ROA)

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 United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 024.

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Date of creation: 2007
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Handle: RePEc:unm:unumer:2007024

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Keywords: Environmental Policy; Strategic Trade Theory; Technology Adoption; Porter Hypothesis;

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References

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  1. 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.
  2. Feichtinger, G. & Hartl, R.F. & Kort, P.M. & Veliov, V., 2003. "Environmental Policy, the Porter Hypothesis and the Composition of Capital: Effects of Learning and Technological Progress," Discussion Paper 2003-61, Tilburg University, Center for Economic Research.
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  8. 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.
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  12. Smith, V Kerry & Walsh, Randy, 2000. " Do Painless Environmental Policies Exist?," Journal of Risk and Uncertainty, Springer, vol. 21(1), pages 73-94, July.
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  18. 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(3/4), pages 310-324.
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Citations

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Cited by:
  1. Leeuwen, George van & Mohnen, Pierre, 2013. "Revisiting the porter hypothesis: An empirical analysis of green innovation for the Netherlands," MERIT Working Papers 002, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Stefan AMBEC & Mark A. COHEN & Stewart ELGIE & Paul LANOIE, 2010. "The Porter Hypothesis at 20: can Environmental Regulation Enhance Innovation and Competitiveness?," Cahiers de recherche 10-02, HEC Montréal, Institut d'économie appliquée.
  3. Leeuwen, George van & Mohnen, Pierre, 2013. "Revisiting the porter hypothesis: An empirical analysis of green innovation for the Netherlands," MERIT Working Papers 002, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  4. Eric Knight & Nicholas Howarth, 2011. "Clean Energy Technology and the Role of Non-Carbon Price Based Policy: an Evolutionary Economics Perspective," CCEP Working Papers 1102, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  5. Zylicz, Tomasz, 2010. "Goals and Principles of Environmental Policy," International Review of Environmental and Resource Economics, now publishers, vol. 3(4), pages 299-334, May.
  6. Costantini, Valeria & Mazzanti, Massimiliano, 2012. "On the green and innovative side of trade competitiveness? The impact of environmental policies and innovation on EU exports," Research Policy, Elsevier, vol. 41(1), pages 132-153.
  7. 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.
  8. Prabal Roy Chowdhury, 2010. "The Porter Hypothesis and Hyperbolic Discounting," EERI Research Paper Series EERI_RP_2010_42, Economics and Econometrics Research Institute (EERI), Brussels.
  9. Georg Licht & Bettina Peters, 2014. "Do Green Innovations stimulate Employment? – Firm-level Evidence From Germany," WWWforEurope Working Papers series 53, WWWforEurope.
  10. Giulio Cainelli & Massimiliano Mazzanti & Roberto Zoboli, 2011. "Enviromental Innovations, Complementarity and Local/Global Cooperation," Working Papers 201104, University of Ferrara, Department of Economics.
  11. Howarth, Nicholas A.A. & Rosenow, Jan, 2014. "Banning the bulb: Institutional evolution and the phased ban of incandescent lighting in Germany," Energy Policy, Elsevier, vol. 67(C), pages 737-746.
  12. 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.
  13. Nicholas Howarth, 2011. "Clean Energy Technology and the Role of Non-Carbon Price-Based Policy: An Evolutionary Economics Perspective," European Planning Studies, Taylor & Francis Journals, vol. 20(5), pages 871-891, October.

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