The Porter Hypothesis and Hyperbolic Discounting
We examine pollution-reducing R&D by a monopoly firm producing a dirty product. In a dynamic framework with hyperbolic discounting, we establish conditions under which the Porter hypothesis goes through, i.e. environmental regulation increases R&D, thus reducing pollution, as well as increasing firm profits. This is likely to hold whenever R&D costs are at an intermediate level, and the planning horizon of the firms is large.
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- Xepapadeas, Anastasios & de Zeeuw, Aart, 1999.
"Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital,"
Journal of Environmental Economics and Management,
Elsevier, vol. 37(2), pages 165-182, March.
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- Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
- 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.
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