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Environmental Policy, Innovation and Performance: New Insights on the Porter Hypothesis

  • Paul Lanoie
  • Nick Johnstone
  • Stefan Ambec
  • Jérémy Laurent-Lucchetti

Jaffe and Palmer (1997) present three distinct variants of the so-called Porter Hypothesis. The weak version of the hypothesis posits that environmental regulation will stimulate certain kinds of environmental innovations. The narrow version of the hypothesis asserts that flexible environmental policy regimes give firms greater incentive to innovate than prescriptive regulations, such as technology-based standards. Finally, the strong version posits that properly designed regulation may induce cost-saving innovation that more than compensates for the cost of compliance. In this paper, we test the significance of these different variants of the Porter Hypothesis using data on the four main elements of the hypothesised causality chain (environmental policy, research and development, environmental performance and commercial performance). The analysis is based upon a unique database which includes observations from approximately 4200 facilities in seven OECD countries. In general, we find strong support for the weak version, qualified support for the narrow version, and qualified support for the strong version as well. Jaffe et Palmer (1997) présentent trois variantes distinctes de l'hypothèse de Porter. La version « faible » de l'hypothèse suppose que la réglementation environnementale stimulera l'apparition d'innovations dans le domaine de l'environnement. La version « étroite » de l'hypothèse affirme que les réglementations environnementales flexibles donnent aux firmes une plus grande incitation pour innover que les réglementations rigides, telles que les normes prescrivant une technologie pour une industrie donnée. Enfin, la version « forte » pose qu'une réglementation correctement conçue peut induire davantage de gains en termes d'innovation que de coûts pour se conformer à la règle. Dans cet article, nous examinons la portée de ces différentes variantes de l'hypothèse de Porter en utilisant des données sur les quatre principaux éléments de la chaîne présumée de causalité (politique environnementale, recherche et développement, performance environnementale et performance commerciale). L'analyse est fondée sur une base de données unique qui inclut des observations d'approximativement 4200 établissements dans sept pays de l'OCDE. Nos résultats supportent fortement la version « faible », mais de façon plus mitigée les versions « étroite » et « forte ».

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2007s-19.

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Length: 37 pages
Date of creation: 01 Sep 2007
Date of revision:
Handle: RePEc:cir:cirwor:2007s-19
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  1. Stefan Ambec & Paul Lanoie, 2007. "When and why does it pay to be green?," Cahiers de recherche 07-04, HEC Montréal, Institut d'économie appliquée.
  2. Wayne B. Gray & Ronald J. Shadbegian, 2001. "Plant Vintage, Technology, and Environmental Regulation," NCEE Working Paper Series 200104, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Nov 2001.
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  4. Brunnermeier, Smita B. & Cohen, Mark A., 2003. "Determinants of environmental innovation in US manufacturing industries," Journal of Environmental Economics and Management, Elsevier, vol. 45(2), pages 278-293, March.
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  7. Frondel, Manuel & Horbach, Jens & Rennings, Klaus, 2004. "End-of-Pipe or Cleaner Production? An Empirical Comparison of Environmental Innovation Decisions Across OECD Countries," ZEW Discussion Papers 04-82, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Ambec, Stefan & Barla, Philippe, 2005. "Can Environmental Regulations be Good for Business? an Assessment of the Porter Hypothesis," Cahiers de recherche 0505, Université Laval - Département d'économique.
  9. Burtraw, Dallas, 2000. "Innovation Under the Tradable Sulfur Dioxide Emission Permits Program in the U.S. Electricity Sector," Discussion Papers dp-00-38, Resources For the Future.
  10. Nick Johnstone & Julien Labonne, 2006. "Environmental policy, management and R&D," OECD Economic Studies, OECD Publishing, vol. 2006(1), pages 169-203.
  11. Jerry A. Hausman, 1994. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Working Papers 4970, National Bureau of Economic Research, Inc.
  12. Adam B. Jaffe & Karen Palmer, 1996. "Environmental Regulation and Innovation: A Panel Data Study," NBER Working Papers 5545, National Bureau of Economic Research, Inc.
  13. Ambec, Stefan & Barla, Philippe, 2002. "A theoretical foundation of the Porter hypothesis," Economics Letters, Elsevier, vol. 75(3), pages 355-360, May.
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  17. Gray, Wayne B. & Deily, Mary E., 1996. "Compliance and Enforcement: Air Pollution Regulation in the U.S. Steel Industry," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 96-111, July.
  18. Ambec, Stefan & Barla, Philippe, 2005. "Quand la réglementation environmentale profite aux polleurs. Survol des fondements théoriques de l'hypothèse de Porter," Cahiers de recherche 0504, GREEN.
  19. 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.
  20. 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.
  21. Ebru Alpay & Joe Kerkvliet & Steven Buccola, 2002. "Productivity Growth and Environmental Regulation in Mexican and U.S. Food Manufacturing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 887-901.
  22. Lanoie, Paul & Thomas, Mark & Fearnley, Joan, 1998. "Firms Responses to Effluent Regulations: Pulp and Paper in Ontario, 1985-1989," Journal of Regulatory Economics, Springer, vol. 13(2), pages 103-20, March.
  23. 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.
  24. 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.
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