Re-visiting the porter hypothesis.

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 ecient in production compared to the old technology, or if both the technologies are relatively ecient in production. Whereas if both the technologies are relatively inecient, then the Porter hypothesis is unlikely to go through. Thus, under the appropriate conditions, the Porter hypothesis may hold even in a static framework.Porter hypothesis ; Environmental policy ; Research and development

Can Stricter Environmental Regulations Increase Export of the Polluting Good?

According to the Pollution Haven Hypothesis (PHH), weak environmental policies improve a country's comparative advantage in the polluting sector, thus promoting its expansion. In this paper, we develop a neo-classical general equilibrium model with two goods and two factors and show that the relationship between environmental policies and comparative advantage can be ambiguous. We focus entirely on emission caps or command and control (CAC) programs of regulation and treat abatement as equivalent to a technological retardation. We show that when the technological retardation is Hick neutral, the PHH holds and the Heckscher Ohlin Samuelson (HOS) theorem determines trade patterns between a capital-abundant country and a labor-abundant country that follow different environmental policies. If pollution abatement is capital biased in the polluting sector, the standard trade theorems and the PHH may not hold. The paper derives a sufficient condition under which the PHH would hold. However, if this condition is violated, the PHH as well as the HOS theorem may not hold.

Distribution neutral abatement policy in a model of trade and environment

The Pollution Haven Hypothesis (PHH) states that with weak environmental policies a country can create comparative advantage in the polluting sector. This paper formulates a 3-good-3-factor model where the abatement input is a pure intermediate good. In our model, the PHH as well as the neoclassical trade theorems are valid only when environmental policies are distribution neutral. Inspired by the US Clean Air Act, we develop and estimate a dynamic panel model. We find that US environmental policies are consistent with distribution neutrality. Our results indicate that lowering abatement standards in all industries is the only way the US can become a pollution haven. In the context of our model, the PHH has damaging implications for the world environment.

Environmental regulation, green R&D and the Porter hypothesis

Purpose – The purpose of this paper is to examine the effects of environmental regulation on green R&D, as well as to characterize the conditions under which the Porter hypothesis, both the weak as well as the strict version, may or may not hold. Design/methodology/approach – The authors use a simple two-stage model with environmental R&D and endogenously determined abatement costs to address these issues. Findings – In a monopoly framework, the authors identify a channel arising out of the replacement effect that may increase R&D incentives following stricter regulation. It was found that the Porter hypothesis, both the weak as well as the strong version, is likely to hold if the new technology is relatively efficient in production, but not otherwise. Originality/value – The paper makes a contribution towards the debate on the relationship between environmental regulation and green R&D, in particular the extremely influential Porter hypothesis. JEL classification: H23, Q22, Q28Abatement tax, Environmental regulations, Green R&D, Porter hypothesis, Replacement effect, Research and development