Do painless environmental policies exist?

This paper reports an experimental test of the Porter Hypothesis that envir onmental regulations create innovation offsets that would nut otherwise be undertaken. Using a process analysis framework to consistently account for non-separabilities in production and pollution abatement practices, the fin dings suggest productivity gains can appear to be greater with environmenta l regulations than without even though they are not. This result which woul d seem to support the Porter argument, is the result of inadequacies in the methods used to decompose the influences to productivity change. Thus, the experiments offer one explanation for why it has been difficult in practic e to reject the hypothesis.