ABSTRACT
This chapter explores the firm-centred view of innovation. It reviews relevant literature, mostly from organizational theory, on the internal, operational features of firms which are successful innovators. The chapter examines the limitations of economic theory in the area. It approaches the interaction between environmental policy and innovation from a behavioural, organizational and strategic viewpoint. The chapter concerns the relationships between regulators, industry and the public and the political and institutional aspects of environmental policy. Environmental policy has an equally important bearing on strategy and innovation in polluting firms which are the targets of policy instruments. Continuous improvement has been recognized as an important feature of the production process in certain internationally successful sectors of Japanese industry, especially car manufacture, from where it takes the name kaizen. Economic theory has been extensively applied to environmental policy but mostly in a limited fashion which fails to take adequate account of innovation.
