Abstract
<p>Environmental policies are designed to deal with externalities either by internalizing environmental costs or imposing specific standards for environmental pollution. This study aims to examine the impact of environmental regulations related to End-of-Life Vehicles (ELV) on innovation in Japan. We determined whether there is any statistical difference in patent activity comparing the periods before and after the regulations were enacted. In order to control for exogenous factors such as business cycles, we also analyzed the ratios of ELV and total environmental patents during the same periods. Results showed that environmental regulations drive innovations and the number of ELV-related patents were larger even after controlling for such exogenous factors. We concluded that environmental policy for ELV in Japan was effective in inducing innovation. However, we also found that the weakness in these types of command and control policy is the lack of incentives for further innovation.</p>
Highlights
Economic analysis of environmental policy asserts that the negative impact of economic activities on the environment constitutes an externality
This study aims to examine the impact of environmental regulations related to End-of-Life Vehicles (ELV) on innovation in Japan
This study analyzed the potential impact of environmental regulations on ELV recycling innovations in Japan
Summary
Economic analysis of environmental policy asserts that the negative impact of economic activities on the environment constitutes an externality To internalize such externalities and persuade firms to innovate with social optimum, environmental regulations are implemented (Johnstone et al, 2010). The environmental regulations can either be based on market mechanisms or command-and-control (CAC) approaches. Yabar et al (2012), for example, found that environmental regulations induce technological innovation in dioxin emissions from incinerators and recycling of home electric appliances in Japan. They used technological patents related to dioxin emissions and home appliances as a proxy in their study and found that environmental regulation triggers innovation. In order to control for exogenous factors such as business cycles, we analyzed the ratios of ELV and total environmental patents during the same period
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