Distribution of Environmental Costs and Benefits, Additional Distortions, and the Porter Hypothesis

The Porter Hypothesis argues that environmental regulations benefit firms by fostering innovation. We discuss four examples consistent with this idea, highlighting either the distribution of benefits or costs, or the presence of some additional distortion, other than pollution. Examples are organized according to the list of market failures. Adding any one market failure creates the possibility that firms benefit from regulations. While each example can be fully consistent with the Porter Hypothesis, it is also possible that regulations benefit firms even without fostering innovation, a result that would be empirically difficult to distinguish from the Porter Hypothesis.