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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 1-14, June.
    • Handle: RePEc:bpj:bejeap:v:contributions.4:y:2005:i:1:n:6
    DOI: 10.2202/1538-0645.1423
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    1. Maggie Cahalan & Wendy Mansfield & Natalie Justh, "undated". "The Status of Academic Libraries in the United States: Results from the 1996 Academic Library Survey with Historical Comparisons," Mathematica Policy Research Reports e75b610016454595b8935532e, Mathematica Policy Research.
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    Cited by:

    1. Luca Lambertini & Giuseppe Pignataro & Alessandro Tampieri, 2022. "Competition among coalitions in a cournot industry: a validation of the porter hypothesis," The Japanese Economic Review, Springer, vol. 73(4), pages 679-713, October.
    2. 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.
    3. André, Francisco J., 2015. "Strategic Effects and the Porter Hypothesis," MPRA Paper 62237, University Library of Munich, Germany.
    4. 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.
    5. Anabel Zárate-Marco & Jaime Vallés-Giménez, 2015. "Environmental tax and productivity in a decentralized context: new findings on the Porter hypothesis," European Journal of Law and Economics, Springer, vol. 40(2), pages 313-339, October.
    6. Jung‐Ah Hwang & Yeonbae Kim, 2017. "Effects of Environmental Regulations on Trade Flow in Manufacturing Sectors: Comparison of Static and Dynamic Effects of Environmental Regulations," Business Strategy and the Environment, Wiley Blackwell, vol. 26(5), pages 688-706, July.
    7. 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.
    8. Michael Peneder & Spyros Arvanitis & Christian Rammer & Tobias Stucki & Martin Wörter, 2022. "Policy instruments and self-reported impacts of the adoption of energy saving technologies in the DACH region," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(2), pages 369-404, May.
    9. A. Minniti & C.P. Parello & P.S. Segerstrom, 2008. "A Schumpeterian Growth Model with Heterogenous Firms," Working Papers 645, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. Angela Köppl & Daniela Kletzan-Slamanig & Kurt Kratena & Ina Meyer, 2006. "Teilstudie 21: Umweltpolitik als Teil einer Wachstumsstrategie," WIFO Studies, WIFO, number 27460, April.
    11. Sen, Suphi, 2015. "Corporate governance, environmental regulations, and technological change," European Economic Review, Elsevier, vol. 80(C), pages 36-61.
    12. Juan Felipe Reyes-Rodríguez & Jairo González-Bueno & Gladys Rueda-Barrios, 2020. "Influence of organisational and information systems and technologies resources and capabilities on the adoption of proactive environmental practices and environmental performance," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 875-895, December.
    13. 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.
    14. Sue Wing, Ian, 2006. "Representing induced technological change in models for climate policy analysis," Energy Economics, Elsevier, vol. 28(5-6), pages 539-562, November.
    15. Andr, Francisco J. & Gonzlez, Paula & Porteiro, Nicols, 2009. "Strategic quality competition and the Porter Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 57(2), pages 182-194, March.
    16. Hiroaki Sakamoto, 2012. "Directed technical change, unilateral actions, and climate change," Discussion papers e-11-007, Graduate School of Economics Project Center, Kyoto University.
    17. 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.
    18. Antonio Minniti & Carmelo Parello & Paul Segerstrom, 2013. "A Schumpeterian growth model with random quality improvements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 755-791, March.
    19. Demirel, Pelin & Kesidou, Effie, 2011. "Stimulating different types of eco-innovation in the UK: Government policies and firm motivations," Ecological Economics, Elsevier, vol. 70(8), pages 1546-1557, June.
    20. Levy, Ting & Dinopoulos, Elias, 2016. "Global environmental standards with heterogeneous polluters," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 482-498.
    21. Filiou, Despoina & Kesidou, Effie & Wu, Lichao, 2023. "Are smart cities green? The role of environmental and digital policies for Eco-innovation in China," World Development, Elsevier, vol. 165(C).
    22. 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.
    23. 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.
    24. Rexhäuser, Sascha & Rammer, Christian, 2011. "Unmasking the Porter hypothesis: Environmental innovations and firm-profitability," ZEW Discussion Papers 11-036, ZEW - Leibniz Centre for European Economic Research.

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