Porter's hypothesis

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The Porter Hypothesis is a hypothesis of environmental politics and economics . It says that properly designed environmental policy measures in a country can trigger product and process innovations and thus improve the efficiency and competitiveness of the companies concerned. According to the hypothesis, this would partially offset the costs incurred by the companies, and the companies could often even benefit.

History and meaning

As early as the 19th century, the idea was pursued that regulation could stimulate companies to reduce their pollution or to recycle waste and generate profit from it. In the 1980s some researchers began to investigate whether and under what circumstances environmental policy could stimulate innovation without reducing competitiveness.

The American economist Michael E. Porter affirmed and popularized the hypothesis that was later named after him in two essays, in 1991 in Scientific American and in 1995 in Journal of Economic Perspectives together with Claas van der Linde. He noted that the discussion about environmental measures assumed a trade-off between the social benefits of an improved environment and the costs for the sector covered by the measure. According to this assumption, politics would have to find a balance between the interests of the general public and the companies concerned. In his view, dynamic aspects, in particular the effect of environmental policy measures on companies' innovation efforts, were not sufficiently taken into account. Innovation offsets could partially offset or even overcompensate for the costs, and they could lead to an improved position in international competition. In his opinion, with a properly designed, technology-neutral and innovation-promoting environmental policy, a win-win from environmental protection and advantages for companies is possible.

To Porter's surprise, his essay, published in 1991, sparked a great deal of echo in politics, business and research. While many economists criticized the hypothesis because it contradicted common economic assumptions (see below), it was received favorably by parts of the economy and politics.

The essay from 1995, "Toward a New Conception of the Environment-Competitiveness Relationship", is one of the most cited papers in the area of ​​"Business and Environment" (see also Ecology-Oriented Business Administration ).

theory

The neoclassical economic theory assumes that profit-maximizing companies have already exploited all possibilities of increasing efficiency. Environmental policy measures such as requirements, bans, environmental taxes or emissions trading systems could not lead to increased efficiency. To the extent that they encourage investment in research and development, they would only crowd out more profitable investment opportunities, since profit-maximizing firms would choose the most profitable investment opportunities on their own initiative. Environmental policy measures would therefore always cause additional costs for individual companies.

Porter and van der Linde, on the other hand, formulated the hypothesis that environmental policy and, in particular, market-based measures could bring about innovations and lead to a more productive use of companies' resources. They are based on the assumption that companies do not recognize and use all possibilities for increasing efficiency on their own. Against the background of dynamically developing technologies, they mention incomplete information , inertia in the company organization and insufficient control of the company by the company owners ( hidden action ) as possible problems.

The productivity increases triggered by environmental policy measures could partially outweigh or even outweigh the costs of the environmental policy measures. As possible reasons, they cited that regulation would:

  1. Signaling companies areas in which there are likely to be inefficiently used resources and potential technical improvements,
  2. if it aims to obtain information, for example the recording of released toxic substances, draw the companies' attention to possible improvements,
  3. reduce the uncertainty that investments in environmental protection will retain their value in the long term,
  4. Generate pressure that would stimulate innovation and progress,
  5. create equal conditions in the transition to higher environmental standards, no company can gain a competitive advantage at the expense of the environment.

Porter and van der Linde emphasized that against this background, environmental policy measures should be designed as technology-neutral and innovation-promoting as possible. They were more in favor of market-based measures than instruments of regulatory law .

variants

In order to examine the Porter hypothesis theoretically and empirically, a distinction is generally made between several parts or variants of the hypothesis:

Weak version
The weak version of the hypothesis is that properly designed regulation can trigger environmental innovation. It says nothing about the effect on the success of companies.
Strong version
The strong version of the hypothesis also states that the environmental innovations that are triggered outweigh the costs of regulation and improve the competitiveness of companies.
Narrow version
Occasionally, one speaks of the “narrow” Porter hypothesis, meaning one of Porter's partial hypotheses that flexible, for example market-based, environmental policy measures give companies greater incentives to innovate and are therefore better than prescriptive measures.

Possible reasons for unused increases in efficiency

In the original version of the Porter Hypothesis, the reasons why companies miss opportunities to increase efficiency and innovation are not detailed. Subsequent studies have tried to fill this gap with various theoretical explanations. In particular, information deficits and cases of market failure are seen as possible explanations.

Managers don't always have to act in accordance with corporate goals. You can e.g. B. pursuing one's own interests, acting differently out of habit or lack of ability, being risk-averse or preferring current profits to future ones . Environmental policy measures would then force the company managers to take profit-increasing measures according to this declaration.

A second set of explanations suggests that market failure leads to unrealized gains. Examples:

  • Information requirements and product labeling to lack of information of customers who are willing to pay more for environmentally friendly products, eliminate them. This would enable higher prices to be achieved with environmentally friendly products and thus provide incentives for innovation.
  • If companies do not gain a sufficient competitive edge by transferring knowledge about their environmental innovation in an unavoidable manner and cannot recoup their expenditure on research and development, they will not invest in innovations that are profitable in themselves. Environmental policy measures can overcome this blockade.

Empirical research

Porter names a number of case studies in which environmental policy measures have led to cost reductions and innovations at the same time. For example, the Clean Air Act , a US air pollution law, and political measures resulting from the Montreal Protocol to protect the ozone layer led the American electronics company Raytheon to use a new means of cleaning circuits that not only reduced emissions, but at the same time also increased the product quality. A recycling law in Japan encouraged the electronics company Hitachi to optimize its dismantling processes. As a result, significantly fewer parts were installed and production costs were reduced at the same time. He cites German recycling laws as an example of a national political measure that correctly anticipated similar measures in other countries and thus gave German companies a pioneering advantage.

Studies that systematically examine the effect of environmental regulation on the innovation behavior of individual companies or branches of industry mostly come to the conclusion that regulation actually promotes innovation. So overall they support the weak version of the Porter hypothesis.

However, there are seldom significant increases in productivity; earlier studies do not support the strong Porter hypothesis, but rather suggest a loss of productivity overall. However, these studies usually do not take into account the fact that there are time lags between regulation, innovation and productivity changes. A single study assumes time lags of three to four years and finds long-term, moderate increases in productivity.

Some studies examine the impact of environmental policies on the competitiveness of certain industries at the country level. Often they do this with the opposite sign - they check whether environmental policy measures could have led to the relocation of production facilities to countries with less strict regulation, the so-called Pollution Haven Hypothesis . The results are inconclusive. Some studies find evidence of a weak Pollution Haven effect instead of an improved competitive position corresponding to the Porter hypothesis. To what extent the type of regulation - market-based approaches or requirements and bans - has an influence is an open question. In general, the cost advantages of market-based approaches are assumed. A study of the OECD countries, however, showed temporary, slight increases in productivity after the introduction of environmental measures, regardless of the type of regulation. According to the results of the research, regulation is likely to force companies and production processes with lower productivity out of the market.

literature

  • Original essays:
    • Michael E. Porter: America's green strategy . In: Scientific American . tape 264 , no. 4 , 1991.
    • Michael E. Porter and Claas van der Linde: Toward a New Conception of the Environment-Competitiveness Relationship . In: Journal of Economic Perspectives . tape 9 , no. 4 , 1995, p. 97-118 , JSTOR : 2138392 .
  • Marcus Wagner: The Porter Hypothesis Revisited: A Literature Review of Theoretical Models and Empirical Tests . Ed .: Center for Sustainability Management, Chair for Business Administration, especially Environmental Management, University of Lüneburg. 2003, ISBN 3-935630-38-7 .
  • Gregor Taistra: The Porter Hypothesis on Environmental Policy . 2000, ISBN 978-3-8244-0495-7 .
  • Stefan Ambec, Mark A. Coheny, Stewart Elgiez, and Paul Lanoie: The Porter Hypothesis at 20 . Can Environmental Regulation Enhance Innovation and Competitiveness? In: Review of Environmental Economics and Policy Advance . 4th January 2013.

Individual evidence

  1. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 2 .
  2. ↑ Michael E. Porter and Claas van der Linde: Toward a New Conception of the Environment-Competitiveness Relationship . 1995, p. 97-98, 106 .
  3. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 15 .
  4. ↑ Michael E. Porter and Claas van der Linde: Toward a New Conception of the Environment-Competitiveness Relationship . 1995, p. 105 .
  5. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 3-4 .
  6. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 3 .
  7. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 1.2 .
  8. ↑ Michael E. Porter and Claas van der Linde: Toward a New Conception of the Environment-Competitiveness Relationship . 1995, p. 99-101 .
  9. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 3-4 .
  10. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 4-5, 12 .
  11. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 5-8 .
  12. ^ Runar Brännlund and Tommy Lundgren: Environmental policy without costs? A review of the Porter hypothesis . In: Environmental and Resource Economics . tape 3 , no. 2 , 2009, p. 4 , doi : 10.1561 / 101.00000020 .
  13. ↑ Michael E. Porter and Claas van der Linde: Toward a New Conception of the Environment-Competitiveness Relationship . 1995, p. 101-105 .
  14. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 9 .
  15. ^ Runar Brännlund and Tommy Lundgren: Environmental policy without costs? A review of the Porter hypothesis . In: Environmental and Resource Economics . tape 3 , no. 2 , 2009, p. 1 , doi : 10.1561 / 101.00000020 .
  16. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 10, 15, 17 .
  17. ↑ Ambec et al .: The Porter Hypothesis at 20 . 2013, p. 11 .
  18. ↑ Silvia Albrizio, Enrico Botta, Tomasz Koźluk and Vera Zipperer: Do Environmental Policies Matter for Productivity Growth? Insights from new Cross-Country Measures of Environmental Policies . ECO / WKP (2014) 72. In: OECD (Ed.): Economics Department Working Papers . No. 1176 , December 13, 2014, p. 34 .