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On modeling pollution-generating technologies

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  • Murty, Sushama
  • Robert Russell, R.
  • Levkoff, Steven B.
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    Abstract

    We argue analytically that many commonly used models of pollution-generating technologies, which treat pollution as a freely disposable input or as a weakly disposable and null-joint output, may generate unacceptable implications for the trade-offs among inputs, outputs, and pollution. We show that the correct trade-offs in production are best captured if a pollution-generating technology is modeled as an intersection of an intended-production technology of the firm and nature's residual-generation set. The former satisfies standard disposability properties, while the latter violates free (strong) disposability of pollution and pollution-causing inputs. As a result, the intersection—which we call a by-production technology—violates standard free disposability of pollution and pollution-causing inputs. Employing data envelopment analysis on an electric-power-plant database, we illustrate shortcomings, under by-production, of two popular efficiency indexes: the hyperbolic and directional-distance-function indexes. We propose and implement an alternative index with superior properties. Under by-production, most efficiency indexes decompose very naturally into intended-production and environmental efficiency indexes. This decomposition is difficult to find under alternative specifications of pollution-generating technologies.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

    Volume (Year): 64 (2012)
    Issue (Month): 1 ()
    Pages: 117-135

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    Handle: RePEc:eee:jeeman:v:64:y:2012:i:1:p:117-135

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    Web page: http://www.elsevier.com/locate/inca/622870

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    Keywords: Pollution-generating technologies; Free disposability; Weak disposability; Data envelopment analysis; Environmental and technical efficiency measurement;

    References

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    Cited by:
    1. Zhang, Ning & Kong, Fanbin & Choi, Yongrok & Zhou, P., 2014. "The effect of size-control policy on unified energy and carbon efficiency for Chinese fossil fuel power plants," Energy Policy, Elsevier, vol. 70(C), pages 193-200.
    2. Du, Kerui & Lu, Huang & Yu, Kun, 2014. "Sources of the potential CO2 emission reduction in China: A nonparametric metafrontier approach," Applied Energy, Elsevier, vol. 115(C), pages 491-501.
    3. Juana AZNAR-MARQUEZ & Jose-Ramon RUIZ-TAMARIT, 2012. "Sufficient and Necessary Conditions for Non-Catastrophic Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2012027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Serra, Teresa & Chambers, Robert G. & Oude Lansink, Alfons, 2014. "Measuring technical and environmental efficiency in a state-contingent technology," European Journal of Operational Research, Elsevier, vol. 236(2), pages 706-717.
    5. Färe, Rolf & Grosskopf, Shawna & Pasurka, Carl A., 2014. "Potential gains from trading bad outputs: The case of U.S. electric power plants," Resource and Energy Economics, Elsevier, vol. 36(1), pages 99-112.
    6. Davutyan, Nurhan & Bilsel, Murat & Tarcan, Menderes, 2013. "Migration, Risk-Adjusted Mortality, Varieties of Congestion and Patient Satisfaction in Turkish Provincial General Hospitals," GIAM Working Papers 13-7, Galatasaray University Economic Research Center.
    7. Kumar, Surender, 2003. "Productivity and profitability changes in the U.S. electric power plants during SO2 trading regime," Working Papers 03/3, National Institute of Public Finance and Policy.
    8. Benjamin Hampf, 2014. "Separating environmental efficiency into production and abatement efficiency: a nonparametric model with application to US power plants," Journal of Productivity Analysis, Springer, vol. 41(3), pages 457-473, June.
    9. Sushama Murty, 2014. "On the environmental Kuznets curve with fossil-fuel induced emission: Theory and some illustrative examples," Discussion Papers 1406, Exeter University, Department of Economics.
    10. Rødseth, Kenneth Løvold, 2013. "Capturing the least costly way of reducing pollution: A shadow price approach," Ecological Economics, Elsevier, vol. 92(C), pages 16-24.
    11. Färe, Rolf & Grosskopf, Shawna & Pasurka,, Carl A., 2013. "Tradable permits and unrealized gains from trade," Energy Economics, Elsevier, vol. 40(C), pages 416-424.
    12. Rødseth, Kenneth Løvold, 2013. "A note on input congestion," Economics Letters, Elsevier, vol. 120(3), pages 599-602.
    13. Leleu, Hervé, 2013. "Shadow pricing of undesirable outputs in nonparametric analysis," European Journal of Operational Research, Elsevier, vol. 231(2), pages 474-480.

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