economic guide questions

EC 230: Topics in Environmental Economics

Department of Economics, University of Vermont

Donna Ramirez Harrington

([email protected])

GUIDE QUESTIONS

Type your answers below the empty space provided (Your answers can spillover to the next page of course) using BLUE CALIBRI FONT: Then upload on designated portal on our course Bb on the date indicated.

These two papers are related to each other and helps us loop back to our Module 1 concepts. Jointly they deal with whether and how environmental regulation affects firms’ economic performance (competitiveness) directly or indirectly via innovation. There is NO LAB for these readings. They are long (a warning!) but easy reads. They are ripe for use as jumping off points or potential references for your term paper in case anyone wants to examine the topics of regulation, innovation and competitiveness separately or examine / compare their relationships for/across specific industries, countries or pollutants.

Ambec et al deals with Porter Hypothesis (PH), while Dechezleprêtre and Sato (DS) deal with Pollution Haven Hypothesis (PHH). The PHH, in turn is related to the EKC concept in the next module which looks at a the issue of a country’s economic performance (growth) in relation to environmental performance (pollution) from a macroeconomic perspective and part of what determines their relationship is regulation in an open economy (trade).

Note that the each paper has a distinct due date for submission.

You will also notice these readings cite a few papers/authors/topics we have discussed earlier in the semester. This is expected as these two readings deal with innovation and regulation (policy instruments) which we spent a lot of time on. You will be alerted to pay attention to these connections through the guide questions below. So be on the lookout – all our readings are related in some way.

Tips:

1. Read all the questions fort before you read the paper to give you a better idea of the scope of each paper and the level of detail I require.

2. Some questions are not chronological in terms of how they appeared in the paper. Hence the answers may not be fully clear or apparent until you finish reading the whole paper (sometimes both papers).

I hope you enjoy these papers as much as I did. They are very closely linked to our other papers and hopefully can give you an affirmation of the key issues in the field of environmental economics and policy.

AMBEC ET AL

Save and post your answers as: YOURFAMILYNAME_Ambecetal.doc

Watch this video about Michael Porter’s main premise on business strategy, so you would have an idea where his thinking comes from in developing the “Porter hypothesis”

https://hbr.org/video/3590615226001/the-explainer-porters-five-forces

1. Define the Porter hypothesis and define innovation offsets (p 4). How is the concept of innovation offsets related to the Porter hypothesis? [ /5]

2. Describe how Porter hypothesis explains the relationship between regulation innovation and competitiveness, i.e. the mechanism(s) through which environmental regulation enhances competitiveness via innovation. [ /5] 

(Hint: the next paper, DS also explains this quite well - pp 196-200)

3. Define weak version, narrow version and strong version and explain each one [ /15]

In doing so, make sure you identify which of these is related to Milliman and Prince (our earlier reading on incentives for innovation), which is the controversial or contentious one and which is related to the induced innovation hypothesis

(Hint: footnote 4 of Ambec et al. and bottom of page 198 of DS)

4. Porter hypothesis has been so controversial but there have been so many theoretical arguments proposed to explain it.

a. Summarize the behavioral argument for the Porter hypothesis [ /5]

b. Summarize the market failure arguments for the Porter hypothesis [ /15]

Make sure you discuss the concepts of (a) market power, (b) asymmetric information and (b) RD spillovers. For each identify and discuss concepts (and authors) we covered earlier this semester can help explain the market failure argument for Porter hypothesis (Hint: scarcity rents, VIBA, dual market failures)

c. Summarize the organizational failure arguments for the Porter hypothesis [ /5]

5. NOT GRADED but make sure you can answer because these relate to topics we covered earlier in the semester.

Summarize briefly empirical evidence for the narrow, weak and strong versions (positive or negative effect on innovation or competitiveness, short-term or long-term, large or small) and the challenges of measurement ad doing empirical analysis

I doubt any of you will do an empirical paper on this topic given the data, measurement and estimation challenges but it is still useful to know which of the versions has robust and clear empirical support and which doesn’t and why.

6. NOT GRADED but make sure you can answer because these relate to topics we covered earlier in the semester.

Explain briefly why older empirical evidence on Porter hypothesis has been mixed but why more recent studies show evidence to support it

7. NOT GRADED but make sure you can answer because these relate to topics we covered earlier in the semester.

Two of the four subsections of the section, “Designing Policies to Enhance Innovation and Competitiveness” (specifically the first and second subsections) are directly related two topics/readings we have had earlier in the semester. Identify what those concepts are and discuss briefly how they relate to enhancing innovation and competitiveness

DECHEZLEPRÊTRE AND SATO (DS)

Save and post your answers as: YOURFAMILYNAME_DS.doc

1. Define the pollution haven hypothesis and the concept of “race to the bottom”. Discuss how pollution haven hypothesis creates a “race to the bottom” [ /5]

2. Following the question above, explain how the regulation - competitiveness (economic impact) relationship under the pollution haven hypothesis is different from that under Porter hypothesis  [ /10]

3. List and briefly describe briefly the first, second and third order effects of regulation. Describe also the direct and indirect costs of the first order effects. Which of these effects and how do the relative magnitude of these effects help explain controversial version Porter hypothesis? [ /15]

4. Describe the mechanism through which environmental regulation affects the following three metrics of competitiveness, all giving rise to pollution haven hypothesis and race to the bottom.

· Trade and trade flows (imports and exports) [ /5]

(This is the section most related to the EKC, the next module, (Cole reading) so be ready to relate this section to EKC later)

· Investment location – new plant births and FDI location (inward and outward) [ /5]

· Employment [ /10]

Which theory of regulation (from Dion et al) does this relationship capture?

Further, the article talks about the role of policy design in achieving competitiveness (no or low adverse employment impact). Which of our previous papers (before spring break) was mentioned as an example to show how to design regulation without adverse employment impacts?

Skip the section called Measuring Competitiveness Empirically

5. NOT GRADED but make sure you can answer because these relate to topics we covered earlier in the semester.

Summarize briefly the empirical evidence of regulation-competitiveness relationship where competitiveness is captured using various broad macroeconomic metrics; i.e. positive or negative, short-term or long-term large or small.

I doubt any of you will do an empirical paper on this topic given the data, measurement and estimation challenges but it is still useful to know which of the macroeconomic measures of competitiveness responds to regulation and in what direction and why.

· Trade and trade flows

· Investment location

· Employment

6. NOT GRADED but make sure you can answer because these relate to topics we covered earlier in the semester.

Summarize empirical evidence for various measures of firm level economic performance

Since this is firm level, this is essentially Porter hypothesis except for the Productivity impact.

· Productivity

· Innovation

· Competitiveness