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Efficiency in Managing the Environment and the Opportunity Cost of Pollution Abatement

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Author Info
Subhash C. Ray (University of Connecticut)
Kankana Mukherjee (Worcester Polytechnic Institute)

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Abstract

Using the directional distance function we study a cross section of 110 countries to examine the efficiency of management of the tradeoffs between pollution and income. The DEA model is reformulated to permit 'reverse disposability' of the bad output. Further, we interpret the optimal solution of the multiplier form of the DEA model as an iso-inefficiency line. This permits us to measure the shadow cost of the bad output for a country that is in the interior, rather than on the frontier of the production possibilities set. We also compare the relative environmental performance of countries in terms of emission intensity adjusted for technical efficiency. Only 10% of the countries are found to be on the frontier. Also, there is considerable inter-country variation in the imputed opportunity cost of CO2 reduction. Further, differences in technical efficiency contribute substantially to differences in the observed levels of CO2 intensity.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2007-09.

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Length: 30 pages
Date of creation: Apr 2007
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Handle: RePEc:uct:uconnp:2007-09

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Keywords: Data Envelopment Analysis directional distance function pollution- income tradeoff shadow price.

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  1. Fare, Rolf, et al, 1989. "Multilateral Productivity Comparisons When Some Outputs Are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 90-98, February. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. 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, Blackwell Publishing, vol. 41(3), pages 381-409. [Downloadable!] (restricted)
  4. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August. [Downloadable!] (restricted)
  5. Palmer, Karen & Oates, Wallace E & Portney, Paul R, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-32, Fall. [Downloadable!] (restricted)
  6. Yangho Chung & Rolf Fare, 1995. "Productivity and Undesirable Outputs: A Directional Distance Function Approach," Microeconomics 9511002, EconWPA, revised 08 Nov 1995. [Downloadable!]
  7. Kumar, Surender, 2006. "Environmentally sensitive productivity growth: A global analysis using Malmquist-Luenberger index," Ecological Economics, Elsevier, vol. 56(2), pages 280-293, February. [Downloadable!] (restricted)
  8. Schipper, Lee & Ting, Michael & Khrushch, Marta & Golove, William, 1997. "The evolution of carbon dioxide emissions from energy use in industrialized countries: an end-use analysis," Energy Policy, Elsevier, vol. 25(7-9), pages 651-672. [Downloadable!] (restricted)
  9. Fare, Rolf & Grosskopf, Shawna & Weber, William L., 2006. "Shadow prices and pollution costs in U.S. agriculture," Ecological Economics, Elsevier, vol. 56(1), pages 89-103, January. [Downloadable!] (restricted)
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