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Abstract:
Drawing upon data collected from over 4,000 manufacturing facilities across the OECD this paper examines the factors which determine the likelihood of having undertaken significant measures with respect to air pollution, wastewater effluent, and solid waste. The roles played by the public policy framework, informal stakeholder pressures, and internal management practices are examined. While the role of public policy (perceived stringency and inspection frequency) is significant, an important role is also played by self-enforcement mechanisms through environmental management. Stakeholder pressures are not significant, except in the case of employees.

environmental policy, environmental management, air and water pollution, corporate social responsibility

Abstract:
The effect of uncertainty related to environmental damages or technological change has on the optimal level of environmental policy stringency has been extensively analysed in the literature. However, empirical evidence on the innovation efforts of firms in the face of actual policy uncertainty has not been examined formally. Drawing upon real options theory, it is hypothesised that for any given level of environmental policy stringency, environmental policy uncertainty can serve as a brake on investment in innovative activities which can reduce the cost of meeting environmental objectives. By increasing the benefits of 'waiting', policy uncertainty will reduce incentives to identify innovative environmental technologies. Using patent counts as a measure of environmental innovation, preliminary empirical evidence has been presented which supports this hypothesis.

Environmental Policy, Innovation, Uncertainty, Risk, Investment