Technical change, external economies, and the Porter hypothesis

Michael Porter introduces the idea that environmental regulations may benefit affected firms. This paper derives results consistent with Porter', hypothesis by employing a general equilibrium frame work with a large number of agents, external economics of scale in production, and discrete changes in technology. The model shows that endogenous technical change makes Porter's hypothesis feasible. However a policy that produce results consistent with Porter's hypothesis is not necessarily optimal. (C) 2001 Elsevier Science.