Does Entrepreneurial Behaviour Matter for the Strong Porter Hypothesis

The traditional economic argument states that compliance with environmental policy diverts resources from innovation. In his engaging paper, Porter (1991) argues counterintuitively that more stringent environmental policies induce innovations the benefits of which exceed the costs. We build a Schumpeterian endogenous growth model that takes account of both arguments by including satisficing and profit-maximizing managers. Our theoretical results enable us to determine the validity condition of the strong Porter hypothesis which is consistent with empirical results.