In this paper we provide a theoretical foundation for the Porter hypothesis in a context of quality competition. We use a duopoly model of vertical product differentiation where firms simultaneously choose the environmental quality of the good they produce (which can be either high or low) and, afterwards, engage in price competition. In this simple setting, we show that a Nash equilibrium of the game with low quality could be Pareto dominated by another strategy profile in which both firms produce the high environmental quality good.We then show how, in this case, the introduction of a penalty to any firm that produces the low environmental quality can result in an increase in both firms' profits. The impact of the policy on consumers depends on the effect of a quality shift on the cost structure of firms.JEL classification: L13, L51, Q55, Q58.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe examine the incentives of an interest group to provide verifiable policy-relevant information to a political decision-maker and to exert political pressure on her. We show that both lobbying instruments are interdependent. In our view information provision is a risky attempt to affect the politician's beliefs about the desirability of the lobby's objective. The constraints governing informational lobbying determine a specific lottery available. The circumstances under which political pressure can be applied specify the lobby's valuation of different beliefs of the politician and, thus, her attitude toward risk. The combination of lotteries available and induced risk preference determines the optimal lobbying behavior. Our approach gives a novel explanation for the fact that interest groups often try to provide information credibly. We identify several factors that induce risk proclivity (and thus information provision). We also show that the availability of political pressure might have a deterrence effect on information provision. This 'shadow of political pressure' might impede information provision at all or induce a complementary relationship between both lobbying instruments.JEL Classification: C72; D72.

Because campaign finance reform is usually motivated by the concern that existing legislation cannot effectively prevent campaign contributions to “buy favors,” this article assumes that contributions influence political decisions. But, given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information, we also assume that lobbies engage in non‐negligible informational lobbying. We focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments. Our main result is to show that campaign finance reform may have important side effects: It may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient. (JEL: C72, D72)

No abstract

Endogenous contests, Contest success function, Information provision, C72, D72, D74,