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On modeling pollution-generating technologies

  • Murty, Sushama
  • Robert Russell, R.
  • Levkoff, Steven B.
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0095069612000356
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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