Does entrepreneurial behaviour matter for the strong Porter hypothesis?

The traditional economic argument states that compliance with environmental policy diverts resources from innovation. In their paper, Porter and van der Linde (1995) argue counterintuitively that more stringent environmental policies induce innovations the benefits of which exceed the costs. We build an R&D-driven 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 that is consistent with empirical results.