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The Effect of Clean Water Regulation on Profitability: Testing the Porter Hypothesis

  • Dylan G. Rassier
  • Dietrich Earnhart
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    Previous theoretical research provides opposing arguments regarding the effect of environmental regulation on profitability. This study provides empirical evidence on this debated effect by testing the "strong" version of the Porter hypothesis. We employ panel data analysis to examine the effect of water regulation, as measured by permitted wastewater discharge limits, on the profitability of publicly held firms operating within the chemical manufacturing industries. We find that tighter water regulation meaningfully lowers profitability. By reinterpreting profitability in terms of sales and costs, the results demonstrate that tighter water regulation increases costs conditioned on a given level of sales.

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    Article provided by University of Wisconsin Press in its journal Land Economics.

    Volume (Year): 86 (2010)
    Issue (Month): 2 ()
    Pages: 329-344

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    Handle: RePEc:uwp:landec:v:86:y:2010:i:2:p:329-344
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    1. Dean, Thomas J. & Brown, Robert L. & Stango, Victor, 2000. "Environmental Regulation as a Barrier to the Formation of Small Manufacturing Establishments: A Longitudinal Examination," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 56-75, July.
    2. Stefan Ambec & Philippe Barla, 2001. "A Theoretical Foundation of the Porter Hypothesis," CSEF Working Papers 54, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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