The Environmental Porter Hypothesis: Theory, Evidence And A Model Of Timing Of Adoption

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).