Munich Personal RePEc Archive

The Porter Hypothesis and Hyperbolic Discounting

Roy Chowdhury, Prabal (2010): The Porter Hypothesis and Hyperbolic Discounting.

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Abstract

We examine pollution-reducing R&D by a monopoly firm producing a dirty product. In a dynamic framework with hyperbolic discounting, we establish conditions under which the Porter hypothesis goes through, i.e. environmental regulation increases R&D, thus reducing pollution, as well as increasing firm profits. This is likely to hold whenever R&D costs are at an intermediate level, and the planning horizon of the firms is large.

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