The impact of regulation-driven environmental innovation on innovation success and firm performance
AbstractThe impact of environmental innovations on firm performance is ambiguous. On the one hand, regulatory-driven environmental innovation may impose additional costs to firms and lower their profits. On the other hand, eco-innovators could profit from lower uncertainty in innovation due to regulatory standards and demand-generating effects of regulation. In this paper we analyse (a) whether regulation-driven environmental innovation generate similar innovation success compared to other types of product and process innovation, and (b) whether regulation-driven environmental innovation increase or decrease firm success (as measured by return on sales). Using firm data from the German innovation survey, we find that both product and process innovations driven by environmental regulation generate similar success in terms of sales with new products and cost savings as other innovations do. However, we find different effects when looking on the field of environmental regulation that triggered innovations. Regulations in favour of sustainable mobility contribute to higher sales with market novelties while regulations in the field of water management lower this type of innovation success. With regard to a firm’s price-cost margin, new processes implemented in order to comply with environmental regulation requirements lower profitability, indicating higher costs for this type of innovation which cannot be passed on prices. Higher profit margins can be observed for firms with innovations triggered by regulations on recycling and waste management as well as on resource efficiency. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 10-065.
Date of creation: 2010
Date of revision:
Other versions of this item:
- Klaus Rennings & Christian Rammer, 2011. "The Impact of Regulation-Driven Environmental Innovation on Innovation Success and Firm Performance," Industry & Innovation, Taylor and Francis Journals, vol. 18(3), pages 255-283.
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
- NEP-ENV-2010-11-13 (Environmental Economics)
- NEP-INO-2010-11-13 (Innovation)
- NEP-REG-2010-11-13 (Regulation)
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