Question

Critically evaluate the Porter hypothesis. Note that a critical evaluation must address both sides of the issue.

Answer 1

The porter hypothesis postulates that the costs of compliance with environmental standards may be offset by addoption of innovations they trigger. According to Porter hypothesis strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competetiveness. The hypothesis was formulated by the economist Michael Porter. We model this hypothesis using a game of timing of technology adoption. will be earlier if the the non-adoption tax is higher. The hypothesis suggests that strict environmental regulations triggers the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect, making production process and products more effecient.