Environmental Policy and Corporate Behaviour
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Environmental Policy and Corporate Behaviour

Edited by Nick Johnstone

For the last 30 years, analysis of the inner workings of the firm has been largely absent from economic assessments of environmental policy. Recent work has highlighted the importance of understanding a firm’s commercial motivations, decision-making procedures and organizational structure when designing and implementing public environmental policies. Environmental Policy and Corporate Behaviour responds to this need, investigating the many internal challenges faced by firms seeking to implement new policies and achieve significant and long-lasting environmental progress.
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Chapter 4: An Empirical Study of Environmental R & D: What Encourages Facilities to be Environmentally Innovative?

Toshi H. Arimura, Akira Hibiki and Nick Johnstone


4. An empirical study of environmental R&D: what encourages facilities to be environmentally innovative? Toshi H. Arimura, Akira Hibiki and Nick Johnstone I. INTRODUCTION Technological innovation is indispensable to dealing with environmental problems, particularly for long-run environmental problems such as global warming. Empirical assessment of the role of environment policy on technological innovation remains limited. Indeed, numerous economic models incorporating environmental issues take technological innovation as exogenous, partly because technological innovation with respect to environmental matters has not been analysed in sufficient depth. From the policy perspective, the characterization of technological innovation as exogenous is not credible or satisfactory. Governments need to assess how they can promote technological innovation in an environmentallyfriendly manner. The Porter Hypothesis (Porter and van der Linde 1995) provides one view on the relationship between environmental policy and technological innovation. It asserts that well-designed environmental regulations can stimulate environment-related technological innovation, which can in turn lead to increased competitiveness in the marketplace. However, the assessment (and indeed interpretation) of the hypothesis is not straightforward. In an attempt to disentangle the different claims Jaffe and Palmer (1997) identified three distinct variants of the Porter Hypothesis. In their framework, the ‘weak’ version of the hypothesis is that environmental regulation will stimulate ‘certain kinds of innovation’. Why should the stringency of environmental policies induce innovation? Explicitly or implicitly environmental policies result in either a change in the cost of different factor inputs or a change in the relative prices of 142 An empirical...

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