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, Thomas
    Title 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 hypothesis
    JEL Q2
    F1
    H7
    O3
    Copyright Holder UNU-MERIT
    Copyright Year 2007
    ISSN 1871-9872
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    Created: Wed, 11 Dec 2013, 15:47:45 JST