IDEAS home Printed from https://ideas.repec.org/a/spr/operea/v21y2021i2d10.1007_s12351-019-00487-z.html
   My bibliography  Save this article

Modelling environmental inefficiency under a quota system

Author

Listed:
  • Juan Aparicio

    (Miguel Hernandez University of Elche (UMH))

  • Magdalena Kapelko

    (Wrocław University of Economics)

  • Lidia Ortiz

    (Miguel Hernandez University of Elche (UMH))

Abstract

This paper introduces the methodology necessary to evaluate inefficiency of regulated decision making units that operate under quotas through data envelopment analysis, accounting for both quotas restrictions and negative environmental externalities of production. Three technical inefficiency measures are proposed: inefficiency in the production of marketed output, environmental inefficiency, and inefficiency with quotas. It is then shown how to aggregate these measures in order to obtain indicators of overall performance. The new approach is illustrated through a numerical example that uses real data available for the European Union dairy sector. The results show that considerable differences in inefficiencies could be found when quotas restrictions are accounted for in the model than in the model without quota imposition, indicating that not accounting explicitly for quotas when measuring performance in regulated sectors may lead to a not accurate estimation of firms’ technical inefficiency.

Suggested Citation

  • Juan Aparicio & Magdalena Kapelko & Lidia Ortiz, 2021. "Modelling environmental inefficiency under a quota system," Operational Research, Springer, vol. 21(2), pages 1097-1124, June.
    • Handle: RePEc:spr:operea:v:21:y:2021:i:2:d:10.1007_s12351-019-00487-z
    DOI: 10.1007/s12351-019-00487-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12351-019-00487-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12351-019-00487-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Murty, Sushama, 2010. "Externalities and fundamental nonconvexities: A reconciliation of approaches to general equilibrium externality modeling and implications for decentralization," Journal of Economic Theory, Elsevier, vol. 145(1), pages 331-353, January.
    2. Vlontzos, George & Niavis, Spyros & Manos, Basil, 2014. "A DEA approach for estimating the agricultural energy and environmental efficiency of EU countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 91-96.
    3. Luis Orea & Alan Wall, 2017. "A Parametric Approach to Estimating Eco-Efficiency," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(3), pages 901-907, September.
    4. Simar, Léopold & Vanhems, Anne & Wilson, Paul W., 2012. "Statistical inference for DEA estimators of directional distances," European Journal of Operational Research, Elsevier, vol. 220(3), pages 853-864.
    5. 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.
    6. Jaraitė, Jūratė & Di Maria, Corrado, 2012. "Efficiency, productivity and environmental policy: A case study of power generation in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1557-1568.
    7. Ferjani, Ali, 2011. "Environmental Regulation and Productivity: A Data Envelopment Analysis for Swiss Dairy Farms," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 12(1).
    8. Aparicio, Juan & Pastor, Jesus T. & Ray, Subhash C., 2013. "An overall measure of technical inefficiency at the firm and at the industry level: The ‘lost profit on outlay’," European Journal of Operational Research, Elsevier, vol. 226(1), pages 154-162.
    9. Boots, Maroeska & Oude Lansink, Alfons & Peerlings, Jack, 1997. "Efficiency Loss Due to Distortions in Dutch Milk Quota Trade," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 24(1), pages 31-46.
    10. Grigorios Emvalomatis & Spiro E. Stefanou & Alfons Oude Lansink, 2010. "A Reduced-Form Model for Dynamic Efficiency Measurement: Application to Dairy Farms in Germany and The Netherlands," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 161-174.
    11. K Hervé Dakpo & Philippe Jeanneaux & Laure Latruffe, 2017. "Greenhouse gas emissions and efficiency in French sheep meat farming: A non-parametric framework of pollution-adjusted technologies," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 44(1), pages 33-65.
    12. Areal, Francisco J. & Tiffin, Richard & Balcombe, Kelvin G., 2012. "Provision of environmental output within a multi-output distance function approach," Ecological Economics, Elsevier, vol. 78(C), pages 47-54.
    13. Sushama Murty & R. Robert Russell, 2018. "Modeling emission-generating technologies: reconciliation of axiomatic and by-production approaches," Empirical Economics, Springer, vol. 54(1), pages 7-30, February.
    14. Fulginiti, Lilyan & Perrin, Richard, 1993. "The Theory and Measurement of Producer Response under Quotas," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 97-106, February.
    15. Jeanneaux, Philippe & Latruffe, Laure, 2016. "Modelling pollution-generating technologies in performance benchmarking: Recent developments, limits and future prospects in the nonparametric frameworkAuthor-Name: Dakpo, K. Hervé," European Journal of Operational Research, Elsevier, vol. 250(2), pages 347-359.
    16. Hampf, Benjamin & Rødseth, Kenneth Løvold, 2015. "Carbon dioxide emission standards for U.S. power plants: An efficiency analysis perspective," Energy Economics, Elsevier, vol. 50(C), pages 140-153.
    17. Finn R. Førsund, 2018. "Multi-equation modelling of desirable and undesirable outputs satisfying the materials balance," Empirical Economics, Springer, vol. 54(1), pages 67-99, February.
    18. Antonio Alvarez & Carlos Arias & Luis Orea, 2006. "Explaining Differences in Milk Quota Values: The Role of Economic Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 182-193.
    19. Colman, David, 2000. "Inefficiencies in the UK milk quota system," Food Policy, Elsevier, vol. 25(1), pages 1-16, February.
    20. Burrell, Alison, 1985. "Price Uncertainty under EC Milk Quotas," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 12(4), pages 335-350.
    21. Zofio, Jose L. & Prieto, Angel M., 2001. "Environmental efficiency and regulatory standards: the case of CO2 emissions from OECD industries," Resource and Energy Economics, Elsevier, vol. 23(1), pages 63-83, January.
    22. Antonio Alvarez & Julio del Corral, 2010. "Identifying different technologies using a latent class model: extensive versus intensive dairy farms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 37(2), pages 231-250, June.
    23. Johannes Sauer & Uwe Latacz-Lohmann, 2015. "Investment, technical change and efficiency: empirical evidence from German dairy production," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 42(1), pages 151-175.
    24. Dyson, R. G. & Allen, R. & Camanho, A. S. & Podinovski, V. V. & Sarrico, C. S. & Shale, E. A., 2001. "Pitfalls and protocols in DEA," European Journal of Operational Research, Elsevier, vol. 132(2), pages 245-259, July.
    25. Silke Huettel & Roel Jongeneel, 2011. "How has the EU milk quota affected patterns of herd-size change?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 38(4), pages 497-527, October.
    26. Cazals, Catherine & Florens, Jean-Pierre & Simar, Leopold, 2002. "Nonparametric frontier estimation: a robust approach," Journal of Econometrics, Elsevier, vol. 106(1), pages 1-25, January.
    27. Seiford, Lawrence M. & Zhu, Joe, 2005. "A response to comments on modeling undesirable factors in efficiency evaluation," European Journal of Operational Research, Elsevier, vol. 161(2), pages 579-581, March.
    28. Leopold Simar & Valentin Zelenyuk, 2006. "On Testing Equality of Distributions of Technical Efficiency Scores," Econometric Reviews, Taylor & Francis Journals, vol. 25(4), pages 497-522.
    29. Magdalena Kapelko & Alfons Oude Lansink & Spiro E Stefanou, 2015. "Effect of Food Regulation on the Spanish Food Processing Industry: A Dynamic Productivity Analysis," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-16, June.
    30. Fare, R. & Grosskopf, S. & Hernandez-Sancho, F., 2004. "Environmental performance: an index number approach," Resource and Energy Economics, Elsevier, vol. 26(4), pages 343-352, December.
    31. Johannes Sauer, 2010. "Deregulation and dairy production systems: a Bayesian distance function approach," Journal of Productivity Analysis, Springer, vol. 34(3), pages 213-237, December.
    32. Bruno Henry de Frahan & Alexandre Baudry & Rembert De Blander & Philippe Polomé & Richard Howitt, 2011. "Dairy farms without quotas in Belgium: estimation and simulation with a flexible cost function," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 38(4), pages 469-495, October.
    33. Fare, Rolf & Grosskopf, Shawna, 2004. "Modeling undesirable factors in efficiency evaluation: Comment," European Journal of Operational Research, Elsevier, vol. 157(1), pages 242-245, August.
    34. Ayres, Robert U & Kneese, Allen V, 1969. "Production , Consumption, and Externalities," American Economic Review, American Economic Association, vol. 59(3), pages 282-297, June.
    35. María Pérez Urdiales & Alfons Oude Lansink & Alan Wall, 2016. "Eco-efficiency Among Dairy Farmers: The Importance of Socio-economic Characteristics and Farmer Attitudes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(4), pages 559-574, August.
    36. Fare, R. & Grosskopf, S. & Pasurka, C., 1986. "Effects on relative efficiency in electric power generation due to environmental controls," Resources and Energy, Elsevier, vol. 8(2), pages 167-184, June.
    37. Hailu, Atakelty & Veeman, Terrence S., 2000. "Environmentally Sensitive Productivity Analysis of the Canadian Pulp and Paper Industry, 1959-1994: An Input Distance Function Approach," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 251-274, November.
    38. Murty, Sushama & Robert Russell, R. & Levkoff, Steven B., 2012. "On modeling pollution-generating technologies," Journal of Environmental Economics and Management, Elsevier, vol. 64(1), pages 117-135.
    39. Mahlberg, Bernhard & Sahoo, Biresh K., 2011. "Radial and non-radial decompositions of Luenberger productivity indicator with an illustrative application," International Journal of Production Economics, Elsevier, vol. 131(2), pages 721-726, June.
    40. Ebru Alpay & Joe Kerkvliet & Steven Buccola, 2002. "Productivity Growth and Environmental Regulation in Mexican and U.S. Food Manufacturing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 887-901.
    41. Zuoxiang Zhao, 2017. "Measurement of production efficiency and environmental efficiency in China’s province-level: a by-production approach," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(4), pages 735-759, October.
    42. Hampf, Benjamin & Rødseth, Kenneth Løvold, 2015. "Carbon dioxode emission standards for U.S. power plants: An efficiency analysis perspective," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77009, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    43. Rolf Färe & Shawna Grosskopf, 2003. "Nonparametric Productivity Analysis with Undesirable Outputs: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1070-1074.
    44. Reinhard, Stijn & Knox Lovell, C. A. & Thijssen, Geert J., 2000. "Environmental efficiency with multiple environmentally detrimental variables; estimated with SFA and DEA," European Journal of Operational Research, Elsevier, vol. 121(2), pages 287-303, March.
    45. Runar Brännlund & Rolf Färe & Shawna Grosskopf, 1995. "Environmental regulation and profitability: An application to Swedish pulp and paper mills," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(1), pages 23-36, July.
    46. Msafiri D. Mbaga & Robert Romain & Bruno Larue & Luc Lebel, 2003. "Assessing Technical Efficiency of Québec Dairy Farms," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 51(1), pages 121-137, March.
    47. Atakelty Hailu, 2003. "Nonparametric Productivity Analysis with Undesirable Outputs: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1075-1077.
    48. Seiford, Lawrence M. & Zhu, Joe, 2002. "Modeling undesirable factors in efficiency evaluation," European Journal of Operational Research, Elsevier, vol. 142(1), pages 16-20, October.
    49. Stijn Reinhard & C.A. Knox Lovell & Geert Thijssen, 1999. "Econometric Estimation of Technical and Environmental Efficiency: An Application to Dutch Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 44-60.
    50. Robert G. Chambers & Teresa Serra & Alfons Oude Lansink, 2014. "On the pricing of undesirable state-contingent outputs," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 41(3), pages 485-509.
    51. Zohra Bouamra-Mechemache & Roel Jongeneel & Vincent Réquillart, 2008. "Impact of a gradual increase in milk quotas on the EU dairy sector," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 35(4), pages 461-491, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aparicio, Juan & Kapelko, Magdalena & Zofío, José L., 2020. "The measurement of environmental economic inefficiency with pollution-generating technologies," Resource and Energy Economics, Elsevier, vol. 62(C).
    2. Andreas Eder, 2022. "Environmental efficiency measurement when producers control pollutants under heterogeneous conditions: a generalization of the materials balance approach," Journal of Productivity Analysis, Springer, vol. 57(2), pages 157-176, April.
    3. Andreas Eder, 2021. "Environmental efficiency measurement when producers control pollutants under heterogeneous conditions: a generalization of the materials balance approach," Working Papers 752021, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.
    4. repec:zbw:inwedp:752021 is not listed on IDEAS
    5. George Halkos & Nickolaos Tzeremes, 2014. "Measuring the effect of Kyoto protocol agreement on countries’ environmental efficiency in CO 2 emissions: an application of conditional full frontiers," Journal of Productivity Analysis, Springer, vol. 41(3), pages 367-382, June.
    6. Sueyoshi, Toshiyuki & Yuan, Yan & Goto, Mika, 2017. "A literature study for DEA applied to energy and environment," Energy Economics, Elsevier, vol. 62(C), pages 104-124.
    7. Abad, Arnaud & Briec, Walter, 2019. "On the axiomatic of pollution-generating technologies: Non-parametric production analysis," European Journal of Operational Research, Elsevier, vol. 277(1), pages 377-390.
    8. George Halkos & Nickolaos Tzeremes, 2013. "National culture and eco-efficiency: an application of conditional partial nonparametric frontiers," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(4), pages 423-441, October.
    9. Halkos, George & Petrou, Kleoniki Natalia, 2019. "Treating undesirable outputs in DEA: A critical review," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 97-104.
    10. Halkos, George E. & Tzeremes, Nickolaos G., 2013. "A conditional directional distance function approach for measuring regional environmental efficiency: Evidence from UK regions," European Journal of Operational Research, Elsevier, vol. 227(1), pages 182-189.
    11. Zhou, Haibo & Yang, Yi & Chen, Yao & Zhu, Joe, 2018. "Data envelopment analysis application in sustainability: The origins, development and future directions," European Journal of Operational Research, Elsevier, vol. 264(1), pages 1-16.
    12. Wang, Ke & Wei, Yi-Ming & Huang, Zhimin, 2018. "Environmental efficiency and abatement efficiency measurements of China's thermal power industry: A data envelopment analysis based materials balance approach," European Journal of Operational Research, Elsevier, vol. 269(1), pages 35-50.
    13. Dakpo, Hervé K & Jeanneaux, Philippe & Latruffe, Laure, 2014. "Inclusion of undesirable outputs in production technology modeling: The case of greenhouse gas emissions in French meat sheep farming," Working Papers 207806, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    14. George Halkos & George Papageorgiou, 2016. "Spatial environmental efficiency indicators in regional waste generation: a nonparametric approach," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 59(1), pages 62-78, January.
    15. Jeanneaux, Philippe & Latruffe, Laure, 2016. "Modelling pollution-generating technologies in performance benchmarking: Recent developments, limits and future prospects in the nonparametric frameworkAuthor-Name: Dakpo, K. Hervé," European Journal of Operational Research, Elsevier, vol. 250(2), pages 347-359.
    16. Dakpo, K Hervé, 2016. "On modeling pollution-generating technologies: a new formulation of the by-production approach," Working Papers 245191, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    17. Beltrán-Esteve, Mercedes & Picazo-Tadeo, Andrés J., 2017. "Assessing environmental performance in the European Union: Eco-innovation versus catching-up," Energy Policy, Elsevier, vol. 104(C), pages 240-252.
    18. Halkos, George & Petrou, Kleoniki Natalia, 2018. "A critical review of the main methods to treat undesirable outputs in DEA," MPRA Paper 90374, University Library of Munich, Germany.
    19. K Hervé Dakpo, 2016. "On modeling pollution-generating technologies: a new formulation of the by-production approach," Working Papers SMART 16-06, INRAE UMR SMART.
    20. Ke Wang & Yi-Ming Wei & Zhimin Huang, 2017. "Environmental efficiency and abatement efficiency measurements of China¡¯s thermal power industry: A data envelopment analysis based materials balance approach," CEEP-BIT Working Papers 108, Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology.
    21. Frederic Ang & Simon M. Mortimer & Francisco J. Areal & Richard Tiffin, 2018. "On the Opportunity Cost of Crop Diversification," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(3), pages 794-814, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:operea:v:21:y:2021:i:2:d:10.1007_s12351-019-00487-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.