IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v115y2022ics0140988322004984.html
   My bibliography  Save this article

Abatement technology innovation, worker productivity and firm profitability: A dynamic analysis

Author

Listed:
  • Li, Shoude
  • Fu, Tong

Abstract

Based on the empirical evidence that improving environmental quality can raise worker productivity, this paper develops a dynamic analysis model to investigate the relationship between abatement technology innovation, worker productivity, and firm profitability in a Cournot competitive market. The main characteristic of this study is that we assume that (1) abatement technology innovation can boost firm profitability by increasing worker productivity; (2) each firm's abatement technology is an endogenous variable, whose state dynamic equation is linear and has an exogenous decay rate of abatement technology; and (3) emissions taxes and the wage rates are exogenous parameters. Our main results show that, first, the system admits a unique saddle-point equilibrium under firm decisions and government regulations, respectively. Second, under firm decisions, the output level (price) monotonically decreases (increases) in the abatement technology, whereas an increase in the rate of emissions taxes leads to an increase (decrease) in firm profitability (worker productivity). Furthermore, under government regulations, a negative relationship exists between output (price) and abatement technology; worker productivity is positively related to improvement in abatement technology (product market competition). Finally, government regulations are better than firm decisions for promoting abatement technology, worker productivity, output levels, and firm profitability.

Suggested Citation

  • Li, Shoude & Fu, Tong, 2022. "Abatement technology innovation, worker productivity and firm profitability: A dynamic analysis," Energy Economics, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322004984
    DOI: 10.1016/j.eneco.2022.106369
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988322004984
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2022.106369?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Paul Lanoie, 2008. "When And Why Does It Pay To Be Green?," CIRANO Papers 2008n-02a, CIRANO.
    3. Boyd, Gale A. & McClelland, John D., 1999. "The Impact of Environmental Constraints on Productivity Improvement in Integrated Paper Plants," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 121-142, September.
    4. Shuhua Chang & Suresh P. Sethi & Xinyu Wang, 2018. "Optimal Abatement and Emission Permit Trading Policies in a Dynamic Transboundary Pollution Game," Dynamic Games and Applications, Springer, vol. 8(3), pages 542-572, September.
    5. Virginia D. McConnell & Robert M. Schwab, 1990. "The Impact of Environmental Regulation on Industry Location Decisions: The Motor Vehicle Industry," Land Economics, University of Wisconsin Press, vol. 66(1), pages 67-81.
    6. Eli Berman & Linda T. M. Bui, 2001. "Environmental Regulation And Productivity: Evidence From Oil Refineries," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 498-510, August.
    7. Benjamin E. Hermalin, 1992. "The Effects of Competition on Executive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 350-365, Autumn.
    8. Fu, Tong & Yang, Siying & Jian, Ze, 2022. "Government support for environmental regulation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 83(C).
    9. George van Leeuwen & Pierre Mohnen, 2017. "Revisiting the Porter hypothesis: an empirical analysis of Green innovation for the Netherlands," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(1-2), pages 63-77, February.
    10. Kenneth Y. Chay & Michael Greenstone, 2003. "The Impact of Air Pollution on Infant Mortality: Evidence from Geographic Variation in Pollution Shocks Induced by a Recession," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 1121-1167.
    11. Frederick Ploeg & Aart Zeeuw, 1992. "International aspects of pollution control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 2(2), pages 117-139, March.
    12. Paul Lanoie & Jérémy Laurent‐Lucchetti & Nick Johnstone & Stefan Ambec, 2011. "Environmental Policy, Innovation and Performance: New Insights on the Porter Hypothesis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 803-842, September.
    13. Janet Currie & Joshua Graff Zivin & Jamie Mullins & Matthew Neidell, 2014. "What Do We Know About Short- and Long-Term Effects of Early-Life Exposure to Pollution?," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 217-247, October.
    14. Martin Neil Baily & Hans Gersbach, 1995. "Efficiency in Manufacturing and the Need for Global Competition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995 Micr), pages 307-358.
    15. Prashant Bharadwaj & Matthew Gibson & Joshua Graff Zivin & Christopher Neilson, 2017. "Gray Matters: Fetal Pollution Exposure and Human Capital Formation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(2), pages 505-542.
    16. Joshua Graff Zivin & Matthew Neidell, 2013. "Environment, Health, and Human Capital," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 689-730, September.
    17. Deborah Aiken & Rolf Färe & Shawna Grosskopf & Carl Pasurka, 2009. "Pollution Abatement and Productivity Growth: Evidence from Germany, Japan, the Netherlands, and the United States," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 11-28, September.
    18. Williams III, Roberton C., 2003. "Health effects and optimal environmental taxes," Journal of Public Economics, Elsevier, vol. 87(2), pages 323-335, February.
    19. Franck Brulhart & Sandrine Gherra & Bertrand V. Quelin, 2019. "Do Stakeholder Orientation and Environmental Proactivity Impact Firm Profitability?," Journal of Business Ethics, Springer, vol. 158(1), pages 25-46, August.
    20. Isabelle Piot-Lepetit & Monique Le Moing, 2007. "Productivity and environmental regulation : the effect of the nitrates directive in the French pig sector," Post-Print hal-02375148, HAL.
    21. Fouad El Ouardighi & Konstantin Kogan & Giorgio Gnecco & Marcello Sanguineti, 2020. "Transboundary pollution control and environmental absorption efficiency management," Annals of Operations Research, Springer, vol. 287(2), pages 653-681, April.
    22. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 77(5), pages 998-1006, December.
    23. Jianmin Tang & Weimin Wang, 2005. "Product Market Competition, Skill Shortages and Productivity: Evidence from Canadian Manufacturing Firms," Journal of Productivity Analysis, Springer, vol. 23(3), pages 317-339, July.
    24. Horn, Henrik & Lang, Harald & Lundgren, Stefan, 1994. "Competition, long run contracts and internal inefficiencies in firms," European Economic Review, Elsevier, vol. 38(2), pages 213-233, February.
    25. Bréchet, Thierry & Meunier, Guy, 2014. "Are clean technology and environmental quality conflicting policy goals?," Resource and Energy Economics, Elsevier, vol. 38(C), pages 61-83.
    26. Maria J. Gil-Molto & Bouwe Dijkstra, 2011. "Strictness of Environmental Policy and Investment in Abatement," Discussion Papers in Economics 11/35, Division of Economics, School of Business, University of Leicester.
    27. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
    28. Aaron K. Chatterji & Michael W. Toffel, 2010. "How firms respond to being rated," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 917-945, September.
    29. Brunnermeier, Smita B. & Cohen, Mark A., 2003. "Determinants of environmental innovation in US manufacturing industries," Journal of Environmental Economics and Management, Elsevier, vol. 45(2), pages 278-293, March.
    30. Shoude Li, 2018. "Dynamic control of a multiproduct monopolist firm’s product and process innovation," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(5), pages 714-733, May.
    31. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
    32. Rassier, Dylan G. & Earnhart, Dietrich, 2015. "Effects of environmental regulation on actual and expected profitability," Ecological Economics, Elsevier, vol. 112(C), pages 129-140.
    33. Lambertini, Luca & Mantovani, Andrea, 2009. "Process and product innovation by a multiproduct monopolist: A dynamic approach," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 508-518, July.
    34. Gray, Wayne B. & Shadbegian, Ronald J., 2003. "Plant vintage, technology, and environmental regulation," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 384-402, November.
    35. Cellini, Roberto & Lambertini, Luca, 2007. "A differential oligopoly game with differentiated goods and sticky prices," European Journal of Operational Research, Elsevier, vol. 176(2), pages 1131-1144, January.
    36. Jorgensen, Steffen & Zaccour, Georges, 2001. "Time consistent side payments in a dynamic game of downstream pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1973-1987, December.
    37. Luca Lambertini & Raimondello Orsini, 2015. "Quality Improvement and Process Innovation in Monopoly: A Dynamic Analysis," Working Paper series 15-12, Rimini Centre for Economic Analysis.
    38. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    39. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, January.
    40. Fu, Tong & Jian, Ze, 2021. "Corruption pays off: How environmental regulations promote corporate innovation in a developing country," Ecological Economics, Elsevier, vol. 183(C).
    41. 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.
    42. Chang, Shuhua & Qin, Weihua & Wang, Xinyu, 2018. "Dynamic optimal strategies in transboundary pollution game under learning by doing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 139-147.
    43. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    44. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    45. Lambertini, Luca & Orsini, Raimondello & Palestini, Arsen, 2017. "On the instability of the R&D portfolio in a dynamic monopoly. Or, one cannot get two eggs in one basket," International Journal of Production Economics, Elsevier, vol. 193(C), pages 703-712.
    46. Fouad Ouardighi & Hassan Benchekroun & Dieter Grass, 2014. "Controlling pollution and environmental absorption capacity," Annals of Operations Research, Springer, vol. 220(1), pages 111-133, September.
    47. Benchekroun, Hassan & Ray Chaudhuri, Amrita, 2014. "Transboundary pollution and clean technologies," Resource and Energy Economics, Elsevier, vol. 36(2), pages 601-619.
    48. Richard E. Caves, 1992. "Industrial Efficiency in Six Nations," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031930, December.
    49. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
    50. Michael E. Porter & Claas van der Linde, 1995. "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 97-118, Fall.
    51. Barbera, Anthony J. & McConnell, Virginia D., 1990. "The impact of environmental regulations on industry productivity: Direct and indirect effects," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 50-65, January.
    52. Pang, Yu, 2018. "Profitable pollution abatement? A worker productivity perspective," Resource and Energy Economics, Elsevier, vol. 52(C), pages 33-49.
    53. Meredith Fowlie, 2010. "Emissions Trading, Electricity Restructuring, and Investment in Pollution Abatement," American Economic Review, American Economic Association, vol. 100(3), pages 837-869, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fu, Tong & Leng, Jingsi & Lin, Ming-Tsung & Goodell, John W., 2022. "External investor protection and internal corporate governance: Substitutes or complements for motivating foreign portfolio investment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kneller, Richard & Manderson, Edward, 2012. "Environmental regulations and innovation activity in UK manufacturing industries," Resource and Energy Economics, Elsevier, vol. 34(2), pages 211-235.
    2. Zhang, Yijun & Song, Yi, 2022. "Tax rebates, technological innovation and sustainable development: Evidence from Chinese micro-level data," Technological Forecasting and Social Change, Elsevier, vol. 176(C).
    3. Li, Shoude & Zhang, Yingxuan, 2023. "Abatement technology innovation and pollution tax design: A dynamic analysis in monopoly," Energy Economics, Elsevier, vol. 119(C).
    4. Sascha Rexhäuser & Christian Rammer, 2014. "Environmental Innovations and Firm Profitability: Unmasking the Porter Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 145-167, January.
    5. Dongdong Li, 2022. "Dynamic optimal control of firms' green innovation investment and pricing strategies with environmental awareness and emission tax," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 920-932, June.
    6. Pang, Yu, 2018. "Profitable pollution abatement? A worker productivity perspective," Resource and Energy Economics, Elsevier, vol. 52(C), pages 33-49.
    7. 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.
    8. Albrizio, Silvia & Kozluk, Tomasz & Zipperer, Vera, 2017. "Environmental policies and productivity growth: Evidence across industries and firms," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 209-226.
    9. Dongdong Li & Chenxuan Shang, 2022. "When does environmental innovation crowd out process innovation? A dynamic analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2275-2283, September.
    10. He, Yiqing & Ding, Xin & Yang, Chuchu, 2021. "Do environmental regulations and financial constraints stimulate corporate technological innovation? Evidence from China," Journal of Asian Economics, Elsevier, vol. 72(C).
    11. Xie, Rong-hui & Yuan, Yi-jun & Huang, Jing-jing, 2017. "Different Types of Environmental Regulations and Heterogeneous Influence on “Green” Productivity: Evidence from China," Ecological Economics, Elsevier, vol. 132(C), pages 104-112.
    12. Lee, Jaegul & Veloso, Francisco M. & Hounshell, David A., 2011. "Linking induced technological change, and environmental regulation: Evidence from patenting in the U.S. auto industry," Research Policy, Elsevier, vol. 40(9), pages 1240-1252.
    13. Dietrich Earnhart & Dylan G. Rassier, 2016. "“Effective regulatory stringency” and firms’ profitability: the effects of effluent limits and government monitoring," Journal of Regulatory Economics, Springer, vol. 50(2), pages 111-145, October.
    14. Rassier, Dylan G. & Earnhart, Dietrich, 2015. "Effects of environmental regulation on actual and expected profitability," Ecological Economics, Elsevier, vol. 112(C), pages 129-140.
    15. 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.
    16. Naoto Aoyama & Emilson C. D. Silva, 2022. "Abatement innovation in a Cournot oligopoly: emission versus output tax incentives," The Japanese Economic Review, Springer, vol. 73(2), pages 325-350, April.
    17. Ren, Shenggang & Yang, Xuanyu & Hu, Yucai & Chevallier, Julien, 2022. "Emission trading, induced innovation and firm performance," Energy Economics, Elsevier, vol. 112(C).
    18. Perino, Grischa & Requate, Till, 2012. "Does more stringent environmental regulation induce or reduce technology adoption? When the rate of technology adoption is inverted U-shaped," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 456-467.
    19. Giovanni Marin & Francesca Lotti, 2017. "Productivity effects of eco-innovations using data on eco-patents," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(1), pages 125-148.
    20. Zhang, Yijun & Li, Xiaoping & Song, Yi & Jiang, Feitao, 2021. "Can green industrial policy improve total factor productivity? Firm-level evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 51-62.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322004984. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.