The Environmental Porter Hypothesis: Theory, Evidence And A Model Of Timing Of Adoption
Source: United Nations University
The Porter Hypothesis postulates that the costs of compliance with environmental standards may be offset by adoption of innovations they trigger. The authors model this hypothesis using a game of timing of technology adoption. They 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).