“It Pays to be Green” – A Premature Conclusion?
It has been claimed that good environmental performance can improve firms’ economic performance. However, because of e.g. data limitations, the methods applied in most previous quantitative empirical studies on effects of environmental performance on economic performance of firms suffer from several shortcomings. We discuss these shortcomings and conclude that previously applied methods are unsatisfactory as support for a conclusion that it pays for firms to be green. Then we illustrate the consequences of these shortcomings by performing several regression analyses of the effect of environmental performance on economic performance using a panel data set of Norwegian plants. A pooled regression where observable firm characteristics like e.g. size or industry are controlled for, confirms a positive effect of environmental performance on economic performance. However, the estimated positive effect could be due to omitted unobserved variables like management or technology. When the regression model controls for unobserved plant heterogeneity, the effect is generally no longer statistically significant. Hence, although greener plants tend to perform economically better, the analysis provides little support for the claim that it is because they are greener. These empirical findings further indicate that a conclusion that it pays to be green is premature. Copyright Springer Science+Business Media, Inc. 2006
Volume (Year): 35 (2006)
Issue (Month): 3 (November)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=100263|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Théophile AZOMAHOU & Phu NGUYEN VAN & Marcus WAGNER, 2001. "Determinants of Environmental and Economic Performance of Firms: An Empirical Analysis of the European Paper Industry," Working Papers of BETA 2001-22, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- Callens, Isabelle & Tyteca, Daniel, 1999. "Towards indicators of sustainable development for firms: A productive efficiency perspective," Ecological Economics, Elsevier, vol. 28(1), pages 41-53, January.
- Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
- Golombek, Rolf & Raknerud, Arvid, 1997. " Do Environmental Standards Harm Manufacturing Employment?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 29-44, March.
- Greg Filbeck & Raymond Gorman, 2004. "The Relationship between the Environmental and Financial Performance of Public Utilities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 29(2), pages 137-157, October.
- Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 281-289, May.
- Ebert, Udo & Welsch, Heinz, 2004. "Meaningful environmental indices: a social choice approach," Journal of Environmental Economics and Management, Elsevier, vol. 47(2), pages 270-283, March.
- Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
- 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.
- Brekke, Kjell Arne & Nyborg, Karine, 2005. "Moral hazard and moral motivation: Corporate social responsibility as labor market screening," Memorandum 25/2004, Oslo University, Department of Economics.
- Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:35:y:2006:i:3:p:195-220. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.