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Returns to scale and damages to scale under natural and managerial disposability: Strategy, efficiency and competitiveness of petroleum firms

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  • Sueyoshi, Toshiyuki
  • Goto, Mika
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    Abstract

    Environmental assessment recently becomes a major policy issue all over the world. This study discusses how to use Data Environment Analysis (DEA) for environmental assessment for planning corporate strategy and international competitiveness. An important feature of DEA environmental assessment is that it classifies outputs into desirable (good) and undesirable (bad) outputs because all private and public entities produce not only desirable outputs but also undesirable outputs as a result of their production activities. This study proposes the two types of output unification for DEA environmental assessment by using a non-radial model. One of the two output unifications is that it considers a decrease in an input vector along with a decrease in the vector of undesirable outputs. This type of unification is referred to as “natural disposability”. The other unification considers an increase in an input vector but a decrease in the vector of undesirable outputs. This type of strategy is referred to as “managerial disposability”. Both unifications increase the vector of desirable outputs. After developing the two concepts on disposability, this study theoretically explores how to measure Returns to Scale (RTS) under natural disposability and Damages to Scale (DTS) under managerial disposability. To document the practicality of the proposed approach, this study applies it to compare the performance of national oil firms with that of international oil companies. This study identifies four important findings on the petroleum industry. First, national oil companies outperform international oil companies in the unified efficiency under natural disposability. Second, international oil companies outperform national oil companies in the unified efficiency under managerial disposability. Third, national oil firms exhibit a mixed result on RTS, while international oil firms exhibit decreasing RTS. Finally, both national and international oil companies exhibit increasing DTS, implying that all oil firms need to decrease their operational sizes for improving their environmental performance on CO2 emission. As an alternative strategy, the result suggests that they need to introduce technology innovation (e.g. clean air technology) into their business operations. The technology based strategy has more practicality than the size reduction in their operations.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 3 ()
    Pages: 645-662

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    Handle: RePEc:eee:eneeco:v:34:y:2012:i:3:p:645-662

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    Web page: http://www.elsevier.com/locate/eneco

    Related research

    Keywords: Petroleum industry; Data envelopment analysis; Environmental assessment;

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    References

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    Cited by:
    1. Chen, Chien-Ming, 2013. "A critique of non-parametric efficiency analysis in energy economics studies," Energy Economics, Elsevier, vol. 38(C), pages 146-152.
    2. Wang, Ke & Wei, Yi-Ming & Zhang, Xian, 2012. "A comparative analysis of China’s regional energy and emission performance: Which is the better way to deal with undesirable outputs?," Energy Policy, Elsevier, vol. 46(C), pages 574-584.
    3. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Returns to Scale, Damages to Scale, Marginal Rate of Transformation and Rate of Substitution in DEA Environmental Assessment," Energy Economics, Elsevier, vol. 34(4), pages 905-917.
    4. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Returns to Scale and Damages to Scale with Strong Complementary Slackness Conditions in DEA Assessment: Japanese Corporate Effort on Environment Protection," Energy Economics, Elsevier, vol. 34(5), pages 1422-1434.
    5. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Data envelopment analysis for environmental assessment: Comparison between public and private ownership in petroleum industry," European Journal of Operational Research, Elsevier, vol. 216(3), pages 668-678.
    6. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Weak and strong disposability vs. natural and managerial disposability in DEA environmental assessment: Comparison between Japanese electric power industry and manufacturing industries," Energy Economics, Elsevier, vol. 34(3), pages 686-699.
    7. Sueyoshi, Toshiyuki & Goto, Mika & Sugiyama, Manabu, 2013. "DEA window analysis for environmental assessment in a dynamic time shift: Performance assessment of U.S. coal-fired power plants," Energy Economics, Elsevier, vol. 40(C), pages 845-857.
    8. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Environmental assessment by DEA radial measurement: U.S. coal-fired power plants in ISO (Independent System Operator) and RTO (Regional Transmission Organization)," Energy Economics, Elsevier, vol. 34(3), pages 663-676.
    9. Sueyoshi, Toshiyuki & Goto, Mika, 2014. "Investment strategy for sustainable society by development of regional economies and prevention of industrial pollutions in Japanese manufacturing sectors," Energy Economics, Elsevier, vol. 42(C), pages 299-312.
    10. Sueyoshi, Toshiyuki & Goto, Mika, 2013. "DEA environmental assessment in a time horizon: Malmquist index on fuel mix, electricity and CO2 of industrial nations," Energy Economics, Elsevier, vol. 40(C), pages 370-382.
    11. Wang, Ke & Lu, Bin & Wei, Yi-Ming, 2013. "China’s regional energy and environmental efficiency: A Range-Adjusted Measure based analysis," Applied Energy, Elsevier, vol. 112(C), pages 1403-1415.
    12. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "DEA environmental assessment of coal fired power plants: Methodological comparison between radial and non-radial models," Energy Economics, Elsevier, vol. 34(6), pages 1854-1863.
    13. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Returns to scale and damages to scale on U.S. fossil fuel power plants: Radial and non-radial approaches for DEA environmental assessment," Energy Economics, Elsevier, vol. 34(6), pages 2240-2259.
    14. Sueyoshi, Toshiyuki & Goto, Mika, 2013. "A comparative study among fossil fuel power plants in PJM and California ISO by DEA environmental assessment," Energy Economics, Elsevier, vol. 40(C), pages 130-145.

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