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Porter's Hypothesis on Environmental Policy in an Oligopoly Model with Cost Asymmetry Caused by Innovation / Porter's Hypothese zur Umweltpolitik in einem Oligopol mit asymmetrischen Kosten

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  • Feess Eberhard

    (Fachbereich Wirtschaftswissenschaften (Departments of Economics), Johann Wolfgang Goethe-Universität Frankfurt/Main, Schumannstr. 34a, D-60325 Frankfurt, Germany)

  • Taistra Gregor

    (Kreditanstalt für Wiederaufbau, Palmengartenstr. 5 - 9 , D-60325 Frankfurt, Germany)

Abstract

Porter's hypothesis that a national leadership in environmental policy can increase the international competitiveness of domestic industries is analyzed in a two-period model with Cournot competition. It is assumed that an environmentally friendly technology leads to a decrease of unit costs in the second period. We demonstrate that a leadership can trigger the adoption of a green technology that increases the domestic firm‘s profits even if aggregated unit costs are higher, and if the firm does not innovate voluntarily. The optimal domestic policy, the timing of the foreign firm‘s innovation, and the effect of environmental policy on the firms‘ profits all depend on three factors: the probability that the policy is imitated, the difference in unit costs caused by the different technologies, and the significance of different unit costs depending on the inverse demand function.

Suggested Citation

  • Feess Eberhard & Taistra Gregor, 2000. "Porter's Hypothesis on Environmental Policy in an Oligopoly Model with Cost Asymmetry Caused by Innovation / Porter's Hypothese zur Umweltpolitik in einem Oligopol mit asymmetrischen Kosten," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 220(1), pages 18-31, February.
    • Handle: RePEc:jns:jbstat:v:220:y:2000:i:1:p:18-31
    DOI: 10.1515/jbnst-2000-0103
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    References listed on IDEAS

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    Cited by:

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    2. Thomas Ziesemer & Peter Michaelis, 2008. "Strategic Environmental Policy and the Accumulation of Knowledge," Discussion Paper Series 301, Universitaet Augsburg, Institute for Economics.

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