Uncertain R&D and the Porter Hypothesis

Popp David ()
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Popp David: Syracuse University

The B.E. Journal of Economic Analysis & Policy, 2005, vol. 4, issue 1, 1-14

Abstract: Ever since Michael Porter proposed that environmental regulations can improve competitiveness, much economic research has examined the potential for such outcomes. Attempts to model Porter hypothesis outcomes in a way consistent with neoclassical economics have focused on things such as strategic relationships between firms, moral hazard problems, and economies of scale. In this paper, I offer a simpler alternative. The results of any R&D project are uncertain. Calibrating a simple model of induced R&D with uncertainty so that the expected value of research is only positive with environmental policy, I find that between 8 and 24 percent of simulations result in cases where post-regulation profits are higher than pre-regulation profits. This result is consistent both with Porter finding specific cases with complete innovation offsets and with macro-level findings that environmental policy is not costless. I conclude by discussing the implication of these results for environmental policy and future research.

Keywords: Porter hypothesis; R&D; uncertainty; induced innovation; technological change (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (30)

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DOI: 10.2202/1538-0645.1423

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