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Environmental Policy and Competitiveness : The Porter Hypothesis and the Composition of Capital

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  • Xepapadeas, A.
  • de Zeeuw, A.J.

    (Tilburg University, Center For Economic Research)

Abstract

The Porter hypothesis suggests a double dividend in the sense that environmental policy improves both environment and competitiveness. The suggestion received strong criticism from economists mainly driven by the idea that if opportunities for higher competitiveness exist firms do not have to be triggered by an extra cost. Therefore, the trade-off for the government between environmental and other targets remains. In this paper a model is developed which confirms the last point but which also draws the attention to some general mechanisms that relax the trade-off considerably. Downsizing and especially modernization of firms subject to environmental policy will increase average productivity and will have positive effects on the marginal decrease of profits and environmental damage. Concluding, a double dividend can generally not be expected but the trade-off is not so grim as is often suggested.

Suggested Citation

  • Xepapadeas, A. & de Zeeuw, A.J., 1998. "Environmental Policy and Competitiveness : The Porter Hypothesis and the Composition of Capital," Discussion Paper 1998-38, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:574efb6e-556c-43af-b12e-2b1e231e7293
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Denny Ellerman, 1998. "Note on The Seemingly Indefinite Extension of Power Plant Lives, A Panel Contribution," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    4. Tobey, James A., 1990. "Effects of Domestic Environmental Policy on Patterns of International Trade," 1990: The Environment, Government Policies, and International Trade Meeting, December 1990, San Diego, CA 50878, International Agricultural Trade Research Consortium.
    5. 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.
    6. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-840, Supplemen.
    7. Michael E. Porter & Claas van der Linde, 1995. "Toward a New Conception of the Environment-Competitiveness Relationship," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 97-118, Fall.
    8. Tobey, James A, 1990. "The Effects of Domestic Environmental Policies on Patterns of World Trade: An Empirical Test," Kyklos, Wiley Blackwell, vol. 43(2), pages 191-209.
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    More about this item

    Keywords

    environmental policy; competitiveness; Porter hypothesis; capital;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F10 - International Economics - - Trade - - - General

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