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Environmental regulation, green R&D and the Porter hypothesis

  • Indrani Roy Chowdhury
  • Sandwip K. Das

Purpose – The purpose of this paper is to examine the effects of environmental regulation on green R&D, as well as to characterize the conditions under which the Porter hypothesis, both the weak as well as the strict version, may or may not hold. Design/methodology/approach – The authors use a simple two-stage model with environmental R&D and endogenously determined abatement costs to address these issues. Findings – In a monopoly framework, the authors identify a channel arising out of the replacement effect that may increase R&D incentives following stricter regulation. It was found that the Porter hypothesis, both the weak as well as the strong version, is likely to hold if the new technology is relatively efficient in production, but not otherwise. Originality/value – The paper makes a contribution towards the debate on the relationship between environmental regulation and green R&D, in particular the extremely influential Porter hypothesis. JEL classification: H23, Q22, Q28

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Article provided by Emerald Group Publishing in its journal Indian Growth and Development Review.

Volume (Year): 4 (2011)
Issue (Month): 2 (September)
Pages: 142-152

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Handle: RePEc:eme:igdrpp:v:4:y:2011:i:2:p:142-152
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  1. Stefan AMBEC & Mark A. COHEN & Stewart ELGIE & Paul LANOIE, 2010. "The Porter Hypothesis at 20: can Environmental Regulation Enhance Innovation and Competitiveness?," Cahiers de recherche 10-02, HEC Montréal, Institut d'économie appliquée.
  2. Adam B. Jaffe & Karen Palmer, 1997. "Environmental Regulation And Innovation: A Panel Data Study," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 610-619, November.
  3. Xepapadeas, A. & de Zeeuw, A.J., 1999. "Environmental policy and competitiveness : The Porter hypothesis and the composition of capital," Other publications TiSEM cfb3ecf9-1a3c-4325-ac1d-b, Tilburg University, School of Economics and Management.
  4. Prabal Roy Chowdhury, 2010. "The Porter Hypothesis and Hyperbolic Discounting," EERI Research Paper Series EERI_RP_2010_42, Economics and Econometrics Research Institute (EERI), Brussels.
  5. Ambec, Stefan & Barla, Philippe, 2002. "A theoretical foundation of the Porter hypothesis," Economics Letters, Elsevier, vol. 75(3), pages 355-360, May.
  6. Ambec, Stefan & Barla, Philippe, 2005. "Can Environmental Regulations be Good for Business? an Assessment of the Porter Hypothesis," Cahiers de recherche 0505, GREEN.
  7. Indrani Roy Chowdhury, 2008. "Joint Ventures, Pollution And Environmental Policy," Bulletin of Economic Research, Wiley Blackwell, vol. 60(1), pages 97-121, 01.
  8. Tobey, James A, 1990. "The Effects of Domestic Environmental Policies on Patterns of World Trade: An Empirical Test," Kyklos, Wiley Blackwell, vol. 43(2), pages 191-209.
  9. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
  10. Simpson, R. David & Bradford, Robert III, 1996. "Taxing Variable Cost: Environmental Regulation as Industrial Policy," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 282-300, May.
  11. Eli Berman & Linda T.M. Bui, 1998. "Environmental Regulation and Productivity: Evidence from Oil Refineries," Papers 0091, Boston University - Industry Studies Programme.
  12. Popp, David, 2006. "International innovation and diffusion of air pollution control technologies: the effects of NOX and SO2 regulation in the US, Japan, and Germany," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 46-71, January.
  13. Mohr, Robert D., 2002. "Technical Change, External Economies, and the Porter Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 158-168, January.
  14. Indrani Roy chowdhury, 2009. "Incentives for Green R&D in a Dirty Industry under Price Competition," Economics Bulletin, AccessEcon, vol. 29(3), pages 2265-2274.
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