Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital

Tilburg University, Center for Economic Research Discussion Series No. 1998-38

Posted: 10 Nov 1998

See all articles by Anastasios Xepapadeas

Anastasios Xepapadeas

Athens University of Economics and Business; University of Bologna - School of Economics, Management, and Statistics

Aart de Zeeuw

Tilburg University - Department of Economics

Abstract

The Porter hypothesis suggests a double dividend in the sense that environmental policy improves both environment and competitiveness. The suggestion received strong criticism from economists mainly driven by the idea that if opportunities for higher competitiveness exist firms do not have to be triggered by an extra cost. Therefore, the trade-off for the government between environmental and other targets remains. In this paper a model is developed which confirms the last point but which also draws the attention to some general mechanisms that relax the trade-off considerably. Downsizing and especially modernization of firms subject to environmental policy will increase average productivity and will have positive effects on the marginal decrease of profits and environmental damage. Concluding, a double dividend can generally not be expected but the trade-off is not so grim as is often suggested.

JEL Classification: Q28, O31, F10

Suggested Citation

Xepapadeas, Anastasios and de Zeeuw, Aart J., Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital. Tilburg University, Center for Economic Research Discussion Series No. 1998-38, Available at SSRN: https://ssrn.com/abstract=138080

Anastasios Xepapadeas

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

University of Bologna - School of Economics, Management, and Statistics ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Aart J. De Zeeuw (Contact Author)

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2065 (Phone)
+31-13-466-3042 (Fax)

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