The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption
Kriechel, Ben and Ziesemer, Thomas (2007). The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption. UNU-MERIT.
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Author Kriechel, Ben
Ziesemer, ThomasTitle The Environmental Porter Hypothesis: Theory, Evidence and a Model of Timing of Adoption Publication Date 2007 Publisher UNU-MERIT 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. Keyword Environmental policy
Strategic trade theory
Technology adoption
Porter hypothesisJEL Q2
F1
H7
O3Copyright Holder UNU-MERIT Copyright Year 2007 ISSN 1871-9872 -
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