Re-visiting the Porter Hypothesis

Indrani, Roy Chowdhury (2006): Re-visiting the Porter Hypothesis.

Abstract

We provide a new formulation of the Porter hypothesis that we feel is in the spirit of the hypothesis. Under this formulation we find that the Porter hypothesis need not hold universally, and identify conditions under which it may or may not hold. We first consider the case where the abatement costs associated with a technology is exogenously given. In that case stricter government regulation increases the incentive for adopting the new technology if the old and the new technologies are relatively environmentally friendly to begin with. We then consider the case where the abatement costs associated with a technology is endogenously given. We show that the Porter hypothesis is likely to hold if the new technology is significantly more efficient in production compared to the old technology, or if both the technologies are relatively efficient in production. Whereas if both the technologies are relatively inefficient, then the Porter hypothesis is unlikely to go through. Thus, under the appropriate conditions, the Porter hypothesis may hold even in a static framework.

• Item Type: MPRA Paper
• Language: English
• Keywords: Porter hypothesis, environmental policy, R&D
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products

References

Barrett, S., 1994. ``Strategic environmental policy and international trade.'' Journal of Public Economics, 54: 325-38.

Murthy, M.N., and S. Kumar, 2001. ``Win win opportunities and environmental regulation: Testing of Porter hypothesis for Indian manufacturing industries. Discussion paper, Institute of Economic Growth, Delhi.

Palmer, K., W.E. Oates and P.R. Portney, 1995. ``Tigthening environmental standards: The benefit-cost or the no cost paradigm.'' Journal of Economic Perspectives, 9: 119-132.

Porter, M.C., 1991. ``America's green strategy.''Scientific American, 264: 96.

Porter, M.E., and C. van der Linde, 1995. ``Toward a new conception of the environment-competitiveness relationship.'' Journal of Economic Perspectives, 9: 97-118.

Zepapadeas, A., and A. de Zeeuw, 1999.``Environmental policy and competitiveness: The Porter Hypothesis and the composition of capital.'' Journal of Environmental Economics and Management, 37: 165-182.

Van den Berg, J.C.J.M. (ed.), 1999. Handbook of Environmental and Resource Economics. Cheltenham, U.K., U.S.A.: Edward Elgar.