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The environmental Porter hypothesis: theory, evidence, and a model of timing of adoption


  • Ben Kriechel
  • Thomas Ziesemer


The Porter hypothesis postulates that the costs of compliance with environmental standards may be offset by adoption of innovations they trigger. We model this hypothesis using a game of timing of technology adoption. We will show that times of adoption will be earlier if the non-adoption tax is higher. The environmental tax will turn the preemption game with low profits into a game with credible precommitment generating higher profits (pro-Porter). If there is a precommitment game without environmental taxes, the introduction of a tax will lead to lower profits (anti-Porter). An evaluation of the empirical literature indicates that the Porter hypothesis will hold even for profit-maximizing firms under multiple market imperfections such as imperfect competition, X-inefficiency, and agency costs. These are more likely to be present in sectors with large firms. In many case studies that we have evaluated, though, we detected an element of explicit or implicit subsidies for environmentally friendly behaviour, which is in line with Pigovian policies.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:ecinnt:v:18:y:2009:i:3:p:267-294 DOI: 10.1080/10438590801943235

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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Eric Knight & Nicholas Howarth, 2011. "Clean Energy Technology and the Role of Non-Carbon Price Based Policy: an Evolutionary Economics Perspective," CCEP Working Papers 1102, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
    4. Zylicz, Tomasz, 2010. "Goals and Principles of Environmental Policy," International Review of Environmental and Resource Economics, now publishers, vol. 3(4), pages 299-334, May.
    5. 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.
    6. Prabal Roy Chowdhury, 2011. "The Porter hypothesis and hyperbolic discounting," Economics Bulletin, AccessEcon, vol. 31(1), pages 167-176.
    7. André, Francisco J., 2015. "Strategic Effects and the Porter Hypothesis," MPRA Paper 62237, University Library of Munich, Germany.
    8. Georg Licht & Bettina Peters, 2014. "Do Green Innovations stimulate Employment? – Firm-level Evidence From Germany," WWWforEurope Working Papers series 53, WWWforEurope.
    9. Ehrenfeld, Wilfried, 2012. "Towards a Theory of Climate Innovation - A Model Framework for Analyzing Drivers and Determinants," IWH Discussion Papers 1/2012, Halle Institute for Economic Research (IWH).
    10. Teemu Makkonen & Sari Repka, 2016. "The innovation inducement impact of environmental regulations on maritime transport: a literature review," International Journal of Innovation and Sustainable Development, Inderscience Enterprises Ltd, vol. 10(1), pages 69-86.
    11. Howarth, Nicholas A.A. & Rosenow, Jan, 2014. "Banning the bulb: Institutional evolution and the phased ban of incandescent lighting in Germany," Energy Policy, Elsevier, vol. 67(C), pages 737-746.
    12. Knight, Eric & Howarth, Nicholas, 2011. "Clean energy technology and the role of non-carbon price based policy: an evolutionary economics perspective," Working Papers 249388, Australian National University, Centre for Climate Economics & Policy.
    13. M.K. Ndegue Fongue & Lota D. Tamini & B. Larue & G.E. West, 2014. "Efficiences technique et environnementale en agriculture: le cas du bassin de la rivière Chaudière au Québec," Cahiers de recherche CREATE 2014-10, CREATE.
    14. Peiqiu Guan & Jun Zhuang, 2015. "Modeling Public–Private Partnerships in Disaster Management via Centralized and Decentralized Models," Decision Analysis, INFORMS, vol. 12(4), pages 173-189, December.
    15. Nicholas Howarth, 2011. "Clean Energy Technology and the Role of Non-Carbon Price-Based Policy: An Evolutionary Economics Perspective," European Planning Studies, Taylor & Francis Journals, vol. 20(5), pages 871-891, October.
    16. Caballero, Karina, 2017. "Políticas públicas sectoriales para el cambio climático en América Latina: una aproximación," Documentos de Proyectos 43123, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    17. Giulio Cainelli & Massimiliano Mazzanti & Simone Borghesi, 2012. "The European Emission Trading Scheme and environmental innovation diffusion: Empirical analyses using Italian CIS data," Working Papers 201201, University of Ferrara, Department of Economics.
    18. Giulio Cainelli & Massimiliano Mazzanti & Roberto Zoboli, 2011. "Enviromental Innovations, Complementarity and Local/Global Cooperation," Working Papers 201104, University of Ferrara, Department of Economics.
    19. Kuckshinrichs, Wilhelm & Kronenberg, Tobias & Hansen, Patrick, 2010. "The social return on investment in the energy efficiency of buildings in Germany," Energy Policy, Elsevier, vol. 38(8), pages 4317-4329, August.
    20. Simone Borghesi & Giulio Cainelli & Massimiliano Mazzanti, 2012. "Brown Sunsets and Green Dawns in the Industrial Sector: Environmental Innovations, Firm Behavior and the European Emission Trading," Working Papers 2012.03, Fondazione Eni Enrico Mattei.

    More about this item


    environmental policy; strategic trade theory; technology adoption; Porter hypothesis;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • F1 - International Economics - - Trade
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights


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