The Porter hypothesis and hyperbolic discounting

We examine pollution-reducing R&D by a monopoly firm producing a dirty product. In a dynamic framework with hyperbolic discounting, we establish conditions under which the Porter hypothesis goes through, i.e. environmental regulation increases R&D, thus reducing pollution, as well as increasing firm profits. This is likely to hold whenever R&D costs are at an intermediate level, and the planning horizon of the firms is large.Porter hypothesis, abatement tax, R&D, hyperbolic discounting.