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Uncertain R&D and the Porter Hypothesis

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  • Popp David

    () (Syracuse University)

Abstract

Ever since Michael Porter proposed that environmental regulations can improve competitiveness, much economic research has examined the potential for such outcomes. Attempts to model Porter hypothesis outcomes in a way consistent with neoclassical economics have focused on things such as strategic relationships between firms, moral hazard problems, and economies of scale. In this paper, I offer a simpler alternative. The results of any R&D project are uncertain. Calibrating a simple model of induced R&D with uncertainty so that the expected value of research is only positive with environmental policy, I find that between 8 and 24 percent of simulations result in cases where post-regulation profits are higher than pre-regulation profits. This result is consistent both with Porter finding specific cases with complete innovation offsets and with macro-level findings that environmental policy is not costless. I conclude by discussing the implication of these results for environmental policy and future research.

Suggested Citation

  • Popp David, 2005. "Uncertain R&D and the Porter Hypothesis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-16, June.
    • Handle: RePEc:bpj:bejeap:v:contributions.4:y:2005:i:1:n:6
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    Citations

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    Cited by:

    1. Stefan Ambec & Mark A. Cohen & Stewart Elgie & Paul Lanoie, 2013. "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(1), pages 2-22, January.
    2. André, Francisco J., 2015. "Strategic Effects and the Porter Hypothesis," MPRA Paper 62237, University Library of Munich, Germany.
    3. Spyros Arvanitis & Michael Peneder & Christian Rammer & Tobias Stucki & Martin Wörter, 2016. "Competitiveness and ecological impacts of green energy technologies: firm-level evidence for the DACH region," KOF Working papers 16-420, KOF Swiss Economic Institute, ETH Zurich.
    4. Angela Köppl & Karl Aiginger & Gunther Tichy & Daniela Kletzan & Kurt Kratena & Ewald Walterskirchen & Ina Meyer, 2006. "Teilstudie 21: Umweltpolitik als Teil einer Wachstumsstrategie," WIFO Studies, WIFO, number 27460, January.
    5. Sen, Suphi, 2015. "Corporate governance, environmental regulations, and technological change," European Economic Review, Elsevier, vol. 80(C), pages 36-61.
    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. Chakraborty, Pavel & Chatterjee, Chirantan, 2017. "Does environmental regulation indirectly induce upstream innovation? New evidence from India," Research Policy, Elsevier, vol. 46(5), pages 939-955.
    8. Richard A. Hunt & Bret R. Fund, 2016. "Intergenerational Fairness and the Crowding Out Effects of Well-Intended Environmental Policies," Journal of Management Studies, Wiley Blackwell, vol. 53(5), pages 878-910, July.
    9. Apergis, Nicholas & Eleftheriou, Sofia & Payne, James E., 2013. "The relationship between international financial reporting standards, carbon emissions, and R&D expenditures: Evidence from European manufacturing firms," Ecological Economics, Elsevier, vol. 88(C), pages 57-66.

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