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Th e P011er hyp oth esis asserts that polluting firms ca n benefit from env iro nme nta l policies, arguing that well-d esign ed envi ro nme nta l reg ulati ons stimulate innovati on. This is ac hieve d by increasing either productivit y or product va lue w hich lead s to pri vat e ben efits. As a conse que nce, env ironme ntal regulations would ben efit both soc iety and regulated firms. Thi s point of view has found a receptive audie nce am ong poli cy mak ers and the popular pr ess but has been severe ly criti cized by economis ts. In this paper, we pr esen t some of the argume nts in th is debate and review the empir ical ev ide nce avai lab le so far in the ec onomic literature.

This note shows that, by reducing agency costs, an environmental regulation may enhance pollution-reducing innovation while at the same time increasing firms'private benefit.

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