A note on the generality of the Porter Hypothesis

The Porter Hypothesis asserts that environmental regulations can spur innovation and benefit regulated firms. Prior economic models derive this outcome only in the presence of additional distortions, suggesting it is unlikely and difficult to induce, though desirable. Using the same graphical framework that economists first employed to critique Porter's hypothesis, this note shows that when distributional consequences of policy are considered, Porter‐consistent outcomes are plausible and could be generated through targeted regulation. However, such outcomes provide no benefit beyond reducing environmental externalities. The benefits to firms indicate that regulators have failed to exploit the revenue recycling potential of environmental policy.