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Productivity: Should We Include Bads?

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Author Info

  • Färe, Rolf

    ()
    (Dept. of Agriculture and Resource Economics)

  • Grosskopf, Shawna

    ()
    (Dept. of Economics and Dept. of Agriculture and Resource Economics)

  • Lundgren, Tommy

    ()
    (CERE, Centre for Environmental and Resource Economics)

  • Marklund, Per-Olov

    ()
    (CERE, Centre for Environmental and Resource Economics and CERUM, Centre for Regional Science)

  • Zhou, Wenchao

    ()
    (CERUM, Centre for Regional Science)

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    Abstract

    This paper studies the interaction between economic and environmental performance. Applying the directional output distance function approach, the purpose is to compare estimates of Luenberger total factor productivity indicators, including and excluding bad outputs. Specifically, based on unique firm level data from Swedish manufacturing covering the period 1990 to 2008, we explore to what extent excluding bad outputs leads to erroneous productivity measurement. The main conclusion is that bad outputs should not only be included in the estimations, but also reduction in bad outputs should be credited. From this point of view the directional output distance function approach and the Luenberger indicator serves as an appropriate basis of productivity measurement.

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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2012-13.pdf
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    Bibliographic Info

    Paper provided by CERE - the Center for Environmental and Resource Economics in its series CERE Working Papers with number 2012:13.

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    Length: 26 pages
    Date of creation: 31 May 2012
    Date of revision:
    Handle: RePEc:hhs:slucer:2012_013

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    Web page: http://www.cere.se

    Related research

    Keywords: Swedish manufacturing; Luenberger indicator; emissions; productivity;

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    References

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    1. Walter Briec & Kristiaan Kerstens, 2008. "Infeasibility and Directional Distance Functions with Application to the Determinateness of the Luenberger Productivity Indicator," Working Papers 2008-ECO-11, IESEG School of Management.
    2. William L. Weber & Bruce Domazlicky, 2001. "Productivity Growth and Pollution in State Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 195-199, February.
    3. Kumar, Surender, 2006. "Environmentally sensitive productivity growth: A global analysis using Malmquist-Luenberger index," Ecological Economics, Elsevier, vol. 56(2), pages 280-293, February.
    4. Rolf Färe & Shawna Grosskopf & Carl A Pasurka, Jr., 2001. "Accounting for Air Pollution Emissions in Measures of State Manufacturing Productivity Growth," Journal of Regional Science, Wiley Blackwell, vol. 41(3), pages 381-409.
    5. Byung M. Jeon & Robin C. Sickles, 2004. "The role of environmental factors in growth accounting," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(5), pages 567-591.
    6. Fare, Rolf & Grosskopf, Shawna & Pasurka, Carl Jr., 2007. "Pollution abatement activities and traditional productivity," Ecological Economics, Elsevier, vol. 62(3-4), pages 673-682, May.
    7. Walter Briec & Kristiaan Kerstens, 2008. "The Luenberger Productivity Indicator: An Economic Specifcation Leading to Infeasibilities," Working Papers 2008-ECO-09, IESEG School of Management.
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