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The Environmental Porter Hypothesis as a Technology Adoption Problem?

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Listed author(s):
  • Kriechel Ben
  • Ziesemer Thomas

    (MERIT)

Abstract

The Porter Hypothesis postulates that the costs of compliance with environmental standards may be partially or even fully offset by adoption of innovations they trigger. The timing of the adoption aspect of the Porter Hypothesis has not been captured in formal theory so far. We show in this paper how the Porter Hypothesis can be approached using a model of technology adoption. In the Reinganum-Fudenberg-Tirole game of timing, a firm adopts earlier under stricter environmental taxation, and under some circumstances can credibly precommit to early adoption. We show that all times of adoption - preemption, following and joint late adoption - are earlier the higher the non-adoption tax. Under preemption the firm of the country that varies environmental taxes will adopt first with certainty indicating increased competitiveness, but get lower profits than without environ- mental policy. Thus the Porter Hypothesis of increasing overall profits is rejected.

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File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:7da2cef6-a8cc-4c7f-9cf0-3086e92e2f2f/datastreams/ASSET1/content
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Paper provided by Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) in its series Research Memorandum with number 011.

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Date of creation: 2003
Handle: RePEc:unm:umamer:2003011
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Keywords: economics of technology ;

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Find related papers by 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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  1. Armin Schmutzler, 2001. "Environmental Regulations and Managerial Myopia," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(1), pages 87-100, January.
  2. Jennifer F. Reinganum, 1981. "On the Diffusion of New Technology: A Game Theoretic Approach," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 395-405.
  3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
  4. Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 176-183, May.
  5. Robert Ayres, 1994. "On economic disequilibrium and free lunch," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(5), pages 435-454, October.
  6. Ambec, Stefan & Barla, Philippe, 2002. "A theoretical foundation of the Porter hypothesis," Economics Letters, Elsevier, vol. 75(3), pages 355-360, May.
  7. 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.
  8. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
  9. Adam B. Jaffe & Karen Palmer, 1997. "Environmental Regulation And Innovation: A Panel Data Study," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 610-619, November.
  10. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
  11. Greaker, Mads, 2003. "Strategic environmental policy; eco-dumping or a green strategy?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 692-707, May.
  12. 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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