Porter hypothesis

According to the Porter hypothesis, strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness. The hypothesis was formulated by the Harvard University economist Michael Porter in an article in 1991. Porter and Claas van der Linde, of the University of St. Gallen, detailed the hypothesis in the 1995 journal article "Toward a New Conception of the Environment-Competitiveness Relationship."

The hypothesis suggests that strict environmental regulation triggers the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect, making production processes and products more efficient. The cost savings that can be achieved are sufficient to overcompensate for both the compliance costs directly attributed to new regulations and the innovation costs. In the first mover advantage, a company is able to exploit innovation by learning curve effects or patenting and attains a dominating competitive position compared to companies in countries where environmental regulations were enforced much later.

Various studies found that stricter environmental regulation stimulates innovation, the "weak" version of Porter hypothesis.