How Should We Study the Relationship between Environmental Regulation and Innovation?

Abstract

This paper offers a conceptual framework for understanding the relationship between environmental regulation and innovation. It seeks to widen the concepts of innovation which are used in environment-oriented studies, while at the same time challenging the idea that regulation is either a straightforward facilitator or inhibitor of innovation. With respect to innovation, we present a ‘systems’ framework, one which emphasises the collective and interactive character of innovation, as an appropriate entry point for analysing the complex institutional, social and networking aspects of the impacts of regulation. With respect to regulation, we seek to challenge the stimulus-response model of the impacts of regulation on innovation. We contest the view that regulation either stops or starts innovation in any simple way. Rather, we take the view that regulation shapes or modulates innovation across networks of firms, and across groups of related industries. A productive way to think about the shaping of innovation is that firms innovate as a method of removing constraints. These may be constraints on the size or geographical location of the market they face, or constraints in labour supply, or finance, and so on. A significant constraint is the regulatory environment, which does not necessarily hinder innovation, but rather says that if firms are to innovate then they must do so with respect to certain performance parameters.

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