Abstract
Environmental regulations influence the prosperity and sustainability of organisations and households. According to the traditional belief, they constitute an additional, undesired cost which lowers competitiveness of economic operators and the entire sectors, although they might be socially desirable. The issue can be, however, approached from a different perspective, namely from the viewpoint of the induced innovation theory – authored by J.R. Hicks in 1932, later developed and presented in 1991 by M. Porter, then on known as Porter hypothesis. It states that a company, affected by more stringent environmental regulations, is often forced to use simple reserves and to implement fundamental technological, organisational and product innovations, which can, all in all, offset the higher costs of adhering to the more severe environmental policy. Consequently, its competitiveness does not have to drop, sometimes it can even grow. Porter hypothesis already has strong theoretical grounds, but empirical verification of its accuracy is still an open issue. In general, today it is assumed that it is completely true (it checks out in the so-called strong version), only in some, rather restrictive conditions. This conclusion – as evidenced in the paper – is also applicable to the food sector, including agriculture.
Highlights
Environmental regulations influence the prosperity and sustainability of organisations and households
The model would behave according to the Porter hypothesis, i.e. profits would grow along with more stringent environmental regulations if: (1) the strategic deliberations had covered the behaviour between companies and the regulator or between the regulators in different countries; (2) the companies had found another, not yet recognised, possibilities of improving the financial results
Regulations oriented at environmental effects, due to their flexibility and motivation to seek innovations, allow for greater reduction in investment and current costs of the necessary adjustments thereto than the appointment of artificial standards of recommended technologies, maximum emission limits or the best practices. At this point,it needs to be strongly emphasised that distribution over time and composition of all the instruments is very important for the desired actions of farmers and maximisation of the set of adjustment options to the signals generated by environmental policy
Summary
Environmental regulations Environmental regulation means involvement of public authorities in convincing the pollution emitter to act in a socially desirable manner, which only seemingly does not correspond to the emitter’s most vital interests (Kolstad, 2011). If companies respond to rationally designed and carefully implemented regulations with starting the process of introducing innovations, it is possible that they will be able to more than offset the incurred costs of adjustments to the environmental requirements This will certainly take place most often when – as a result of innovations – the costs of pollution emissions drop, which will be tantamount to better productivity and efficiency and this will, in turn, translate directly into higher international competitiveness. This improvement can be even faster if the environmental standards are more stringent or were introduced earlier than in other countries. More flexible environmental policy instruments, aimed, first and foremost, at results rather than organisation and run of production processes, increase the probability of their translation into greater innovation effort and better results of an economic entity (Ambec, Cohen, Elgie and Lanoie, 2011; Ambec, Cohen, Elgie and Lanoie, 2013; Lanoie et al 1997; Porter, 1991)
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