Journal of Environmental Economics and Management · 1996 · 228 citations · 0 references
Public AffairsEnvironmental PolicyRegulatory PolicyEnvironmental EconomicsEnvironmental RegulationIndustrial OrganizationEnvironmental StrategyIndustrial PolicyRegulationRegulatory InnovationEconomic Analysis Of RegulationsEconomic Impact Of RegulationEconomic Theory Of RegulationRegulatory Impact On CompetitionSectoral CompetitivenessStrategic ModelVariable Cost BehaviorVariable Cost Functions
Conventional wisdom holds that strict environmental regulations disadvantage firms, yet recent commentators argue that such regulations can enhance domestic competitiveness by inducing innovation. The study evaluates whether stricter regulation enhances domestic competitiveness. It does so using a strategic trade model. In very special cases a strengthening of regulation may shift profits from foreign to domestic firms, but this is not a general result; environmental regulation is unlikely to generate industrial advantage.
Conventional wisdom has it that a country that enacts strict environmental regulations will place its firms at a competitive disadvantage. This view has been challenged recently. Some commentators argue that stricter regulation will enhance domestic competitiveness: strict regulations induce innovation. We evaluate this argument in a strategic trade model. In very special cases a strengthening of regulation may result in a shift of profits from foreign to domestic firms. This is not a general result, however. Environmental regulation should, of course, be imposed to control externalities, but it is unlikely that it will serve to generate industrial advantage.