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Returns to Scale and Damages to Scale with Strong Complementary Slackness Conditions in DEA Assessment: Japanese Corporate Effort on Environment Protection

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  • Sueyoshi, Toshiyuki
  • Goto, Mika
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    Abstract

    This study proposes a use of Data Envelopment Analysis (DEA) for environmental assessment. All organizations in private and public sectors produce not only desirable (good) but also undesirable (bad) outputs as a result of their economic activities. The proposed use of DEA determines the level of unified (operational and environmental) efficiency of all the organizations. A contribution of this study is that it explores how to measure not only RTS (Returns to Scale) on desirable outputs but also a new concept regarding “DTS: Damages to Scale” (corresponding to RTS for undesirable outputs). This study discusses how to measure RTS under natural disposability and DTS under managerial disposability by DEA. The measurement of RTS and DTS is formulated by incorporating “Strong Complementary Slackness Conditions (SCSCs)”. As a result, this study can handle an occurrence of multiple reference sets and multiple projections in the RTS/DTS measurement. The incorporation of SCSCs makes it possible both to restrict DEA multipliers in a specific range without any prior information and to identify all possible efficient organizations as a reference set. Using the unique capabilities of SCSCs, this study discusses the use of DEA environmental assessment by exploring how to classify the type of RTS/DTS with SCSCs. Such analytical capabilities are essential, but not previously explored in DEA environmental assessment for energy industries. As an illustrative example, this study applies the proposed approach for the performance evaluation of Japanese manufacturing industries. This study finds that these firms need to introduce technology innovation to reduce an amount of greenhouse gases and wastes. The empirical result confirms the importance of measuring RTS/DTS in DEA environmental assessment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 5 ()
    Pages: 1422-1434

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    Handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1422-1434

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

    Related research

    Keywords: Data Envelopment Analysis; Environmental assessment; Strong Complementary Slackness Conditions; Returns to Scale; Damages to Scale;

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    References

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    1. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "DEA radial measurement for environmental assessment and planning: Desirable procedures to evaluate fossil fuel power plants," Energy Policy, Elsevier, vol. 41(C), pages 422-432.
    2. Triantis, Konstantinos & Otis, Paul, 2004. "Dominance-based measurement of productive and environmental performance for manufacturing," European Journal of Operational Research, Elsevier, vol. 154(2), pages 447-464, April.
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    Cited by:
    1. 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.
    2. 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.
    3. Sueyoshi, Toshiyuki & Goto, Mika, 2014. "DEA radial measurement for environmental assessment: A comparative study between Japanese chemical and pharmaceutical firms," Applied Energy, Elsevier, vol. 115(C), pages 502-513.
    4. Wang, H. & Zhou, P. & Zhou, D.Q., 2013. "Scenario-based energy efficiency and productivity in China: A non-radial directional distance function analysis," Energy Economics, Elsevier, vol. 40(C), pages 795-803.

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