Environmental Policy Indicator : application of a Three-level Random Intercept Model

We propose the use of a two level random intercept model to measure the degree of environmental policy performance of different countries and to study its determinants. Inspired by the literature on multilevel latent models and Item Response Theory (IRT), this framework treats policy commitment as a latent variable which is estimated conditional on the difficulty of the policy portfolio implemented by each country. We contribute to the study and scoring of environmental and energy policies in three main ways. First, the model results in a ranking of countries which is conditional on the complexity of their chosen policy portfolio. Second, we provide a unified framework in which to construct a policy indicator and to study its determinants through a latent regression approach. The resulting country ranking can thus be cleaned from the effect of economic and institutional observables which affect policy design and implementation. Third, the model estimates parameters which can be used to describe and compare policy portfolios across countries. We apply this methodology to the case of energy efficiency policies in the industrial sectors of 29 EU countries between 2004 and 2011. We conclude by highlighting the future possible applications of this approach, which are not confined to the realm of environmental and energy policy

Environmental regulation and competitiveness : empirical evidence on the Porter Hypothesis from European manufacturing sectors

This paper investigates the "weak" and "strong" versions of Porter Hypothesis (PH) focusing on the manufacturing sectors of 17 European countries between 1997 and 2009. The hypothesis that well-crafted and well-enforced regulation would benefit both the environment and the firm was originally proposed by Porter (1991) and Porter and van der Linde (1995). To date, the literature has analyzed the impact of environmental regulation on innovation and on productivity mostly in separate analyses and focusing on the USA. The few existing contributions on Europe study the effect of environmental regulation either on green innovation or on performance indicators such as exports. We instead look at overall innovation and productivity impacts. First, focusing on overall innovative activity allows us to account for potential opportunity costs of induced innovations. Second, productivity impacts are arguably the most relevant indicators for the "strong" PH. As a proxy of environmental policy stringency we use pollution abatement and control expenditures (PACE), one of the few sectoral level indicators available. We remedy upon its main drawback, namely potential endogeneity, by adopting an instrumental variable estimation approach. We find evidence of a positive impact of environmental regulation on the output of innovation activity, as proxied by patents, thus providing support in favor of the "weak" PH. This result is in line with most of the literature. On the other front, we find no evidence in favor of the "strong" PH, as productivity appears to be unaffected by the degree of pollution control and abatement efforts

Environmental Policy Performance and its Determinants: Application of a Three-level Random Intercept Model

This paper contributes to the study of environmental and energy policy by using a three-level random intercept (TLRI) model to rank the performance of different countries. Inspired by the literature on Item Response Theory and multilevel latent models, the TLRI model treats policy commitment as a latent variable which is estimated conditional on the difficulty of the policy portfolio implemented by each country. This approach is characterized by three novel aspects. First, the model results in a ranking of countries which is conditional on the complexity of their chosen policy portfolio. Second, it provides a unified framework in which to construct a policy indicator and to study its determinants through a latent regression approach. The resulting country ranking can thus be cleaned from the effect of economic and institutional observables which affect policy design and implementation. Third, the model estimates parameters which can be used to describe and compare policy portfolios across countries. We apply this methodology to the case of energy efficiency policies in the industrial sectors of 29 EU countries between 2004 and 2011. In the conclusions we highlight the future possible applications of this approach, which are not confined to the realm of environmental and energy policy

Environmental Policy Performance and its Determinants: Application of a ThreeeLevel Random Intercept Model

We propose the use of a three-level random intercept model to measure the degree of environmental policy performance of different countries and to study its determinants. Inspired by the literature on multilevel latent models and Item Response Theory (IRT), this framework treats policy commitment as a latent variable which is estimated conditional on the difficulty of the policy portfolio implemented by each country. We contribute to the study and scoring of environmental and energy policies in three main ways. First, the model results in a ranking of countries which is conditional on the complexity of their chosen policy portfolio. Second, we provide a unified framework in which to construct a policy indicator and to study its determinants through a latent regression approach. The resulting country ranking can thus be cleaned from the effect of economic and institutional observables which affect policy design and implementation. Third, the model estimates parameters which can be used to describe and compare policy portfolios across countries. We apply this methodology to the case of energy effciency policies in the industrial sectors of 29 EU countries between 2004 and 2011. We conclude by highlighting the future possible applications of this approach, which are not confined to the realm of environmental and energy policy