The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption

Thomas Ziesemer () and Ben Kriechel ()

No 24, UNU-MERIT Working Paper Series from United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology

Abstract: The Porter Hypothesis postulates that the costs of compliance with environmental standards may be offset by adoption of innovations they trigger. We model this hypothesis using a game of timing of technology adoption. We show that times of adoption are earlier the higher the non-adoption tax. The environmental tax turns the preemption game with low profits into a game with credible precommitment yielding high profits (pro-Porter). If there is a precommitment game without environmental taxes, the introduction of a tax leads to lower profits (anti-Porter). An evaluation of the empirical literature indicates that the Porter hypothesis holds even for profit-maximizing firms under multiple market imperfections such as imperfect competititon, X-inefficiency, and agency costs. These are more likely to be present in sectors with large firms. In many case studies that we evaluate, though, we detect an element of explicit or implicit subsidies for environmentally friendly behaviour, which is in line with Pigovian policies.

Keywords: Environmental Policy; Strategic Trade Theory; Technology Adoption; Porter Hypothesis (search for similar items in EconPapers)
JEL-codes: Q2 F1 H7 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-ino
Date: 2007
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Related works:
Journal Article: The environmental Porter hypothesis: theory, evidence, and a model of timing of adoption (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:unumer:2007024

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