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Customer, regulatory, and competitive pressure as drivers of environmental innovation

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  • Yalabik, Baris
  • Fairchild, Richard J.

Abstract

We develop an economic analysis in order to examine the effects of consumer, regulatory, and competitive pressure on firm investments in environmentally friendly production. Specifically, we ask: Why do firms vary in their levels of environmental innovation? Under what conditions are such pressures effective in bringing about environmental innovation? We first consider a monopolist who faces the twin pressures of reduced customer demand and regulatory penalties, as a result of its emissions. In response to these pressures, the firm has the opportunity to make a costly investment in reduction of emissions. Secondly, we consider a competitive scenario in which two firms compete for environmentally sensitive customers. Solving our model, we find that pressure has the intended effect as long as the firm's initial level of emissions is below a certain threshold. If the emissions are above this threshold, we find that pressure might have an adverse effect on the firm's environmental investment, and that subsidies that support environmental innovation can be a better alternative. We also show that competition over environmentally sensitive customers can improve the effectiveness of environmental pressures.

Suggested Citation

  • Yalabik, Baris & Fairchild, Richard J., 2011. "Customer, regulatory, and competitive pressure as drivers of environmental innovation," International Journal of Production Economics, Elsevier, vol. 131(2), pages 519-527, June.
  • Handle: RePEc:eee:proeco:v:131:y:2011:i:2:p:519-527
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    References listed on IDEAS

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    Cited by:

    1. Ding, Huiping & Zhao, Qilan & An, Zhirong & Tang, Ou, 2016. "Collaborative mechanism of a sustainable supply chain with environmental constraints and carbon caps," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 191-207.
    2. Keshminder Singh Jit Singh, 2015. "Ecological Intelligence: The Hidden Impact of What We Buy, by Daniel Goleman, New York: Broadway Books, 2010, 273 pp," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 7(1), pages 119-121, April.
    3. Hong, Zhaofu & Chu, Chengbin & Yu, Yugang, 2016. "Dual-mode production planning for manufacturing with emission constraints," European Journal of Operational Research, Elsevier, vol. 251(1), pages 96-106.
    4. Subramanian, Nachiappan & Gunasekaran, Angappa, 2015. "Cleaner supply-chain management practices for twenty-first-century organizational competitiveness: Practice-performance framework and research propositions," International Journal of Production Economics, Elsevier, vol. 164(C), pages 216-233.
    5. repec:eee:proeco:v:194:y:2017:i:c:p:126-134 is not listed on IDEAS
    6. Wang, X.J. & Choi, S.H., 2015. "Stochastic lot sizing manufacturing under the ETS system for maximisation of shareholder wealth," European Journal of Operational Research, Elsevier, vol. 246(1), pages 66-75.
    7. repec:eee:proeco:v:193:y:2017:i:c:p:172-182 is not listed on IDEAS
    8. Zhang, Yibin & Hafezi, Maryam & Zhao, Xuan & Shi, Victor, 2017. "The impact of development cost on product line design and its environmental performance," International Journal of Production Economics, Elsevier, vol. 184(C), pages 122-130.
    9. Hoffenson, Steven & Dagman, Andreas & Söderberg, Rikard, 2015. "Visual quality and sustainability considerations in tolerance optimization: A market-based approach," International Journal of Production Economics, Elsevier, vol. 168(C), pages 167-180.
    10. McDonald, Conor M., 2016. "Integrating packaging and supply chain decisions: Selection of economic handling unit quantities," International Journal of Production Economics, Elsevier, vol. 180(C), pages 208-221.
    11. Yu, Yugang & Han, Xiaoya & Hu, Guiping, 2016. "Optimal production for manufacturers considering consumer environmental awareness and green subsidies," International Journal of Production Economics, Elsevier, vol. 182(C), pages 397-408.
    12. repec:prp:uppmos:978-961-7023-53-4 is not listed on IDEAS
    13. repec:kap:jbuset:v:147:y:2018:i:2:d:10.1007_s10551-015-2927-3 is not listed on IDEAS
    14. repec:pal:jorsoc:v:68:y:2017:i:9:d:10.1057_s41274-016-0123-1 is not listed on IDEAS
    15. repec:eee:transe:v:105:y:2017:i:c:p:60-82 is not listed on IDEAS
    16. Prajogo, Daniel I., 2016. "The strategic fit between innovation strategies and business environment in delivering business performance," International Journal of Production Economics, Elsevier, vol. 171(P2), pages 241-249.
    17. Brandenburg, Marcus & Govindan, Kannan & Sarkis, Joseph & Seuring, Stefan, 2014. "Quantitative models for sustainable supply chain management: Developments and directions," European Journal of Operational Research, Elsevier, vol. 233(2), pages 299-312.
    18. Chen, Xu & Wang, Xiaojun & Chan, Hing Kai, 2017. "Manufacturer and retailer coordination for environmental and economic competitiveness: A power perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 97(C), pages 268-281.
    19. Olivier Lavastre & Blandine Ageron & L. Chaze-Magnan, 2014. "How to measure Innovative Supply Chain Strategies (ISCS) in the context of SCM? -Construct development and measurement validation," Post-Print halshs-01185832, HAL.
    20. Choudhary, Alok & Suman, Ravi & Dixit, Vijaya & Tiwari, M.K. & Fernandes, Kiran Jude & Chang, Pei-Chann, 2015. "An optimization model for a monopolistic firm serving an environmentally conscious market: Use of chemical reaction optimization algorithm," International Journal of Production Economics, Elsevier, vol. 164(C), pages 409-420.
    21. Liu, Qian & Zheng, Lucy, 2016. "Assessing the economic performance of an environmental sustainable supply chain in reducing environmental externalitiesAuthor-Name: Ding, Huiping," European Journal of Operational Research, Elsevier, vol. 255(2), pages 463-480.

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