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Estimation of environmental efficiencies of economies and shadow prices of pollutants in countries in transition


  • Salnykov Mykhaylo


  • Zelenyuk Valentin



Various measures of technical efficiency, such as output distance function, input distance function and directional distance function can be used as sustainability indicators in the case when some outputs produced are undesirable, such as pollution. Shadow prices of environmental pollution asses short run perspectives of increase in pollution when desirable output is increased and may serve as a reference value for environmental taxes and prices for international emission trade. We make an attempt to estimate environmental efficiencies of countries (based on the output distance function with general directional vector) as well as shadow prices for selected pollutants (CO2, SO2 and NOx). Two alternative estimation approaches are employed: parametric (Translog specification) and nonparametric (DEA). Statistical characteristics of the obtained parametric estimates are assessed using the smooth homogeneous bootstrap technique. Our results indicate that, on average, countries value pollutants proportionally to their direct impact on human health (i.e. the most hazardous pollutants have the highest shadow prices). We find that in general both rich and poor countries can be fully environmentally efficient, while most of the countries in transition (CITs) turned out to be inefficient. Our findings imply that under emission permit trade agreements CITs will generally be permit sellers. By selling permits they will hamper their future ability of economic growth, thus some restrictions (which we propose) must be made in such agreements to limit their unsustainability for CITs. Our estimates show that currently global wealth and pollution are allocated inefficiently. We determine that different estimation techniques provide with statistically different estimates. The work provides with illustrative examples of using the estimates to draw forecasts on environmental effect of economic growth; to determine price range on international pollution permit markets and to estimate economically justified rates of environmental taxation. Finally, we provide policy implications and outline potential directions for the future studies in the field.

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  • Salnykov Mykhaylo & Zelenyuk Valentin, 2005. "Estimation of environmental efficiencies of economies and shadow prices of pollutants in countries in transition," EERC Working Paper Series 05-06e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:05-06e

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    References listed on IDEAS

    1. Coggins, Jay S. & Swinton, John R., 1996. "The Price of Pollution: A Dual Approach to Valuing SO2Allowances," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 58-72, January.
    2. Coelli, Tim & Perelman, Sergio, 1999. "A comparison of parametric and non-parametric distance functions: With application to European railways," European Journal of Operational Research, Elsevier, vol. 117(2), pages 326-339, September.
    3. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
    4. Léopold Simar & Paul W. Wilson, 1998. "Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Nonparametric Frontier Models," Management Science, INFORMS, vol. 44(1), pages 49-61, January.
    5. Russell W. Pittman, 1981. "Issue in Pollution Control: Interplant Cost Differences and Economies of Scale," Land Economics, University of Wisconsin Press, vol. 57(1), pages 1-17.
    6. Schmidt, Peter, 1976. "On the Statistical Estimation of Parametric Frontier Production Functions," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 238-239, May.
    7. Osman Zaim & Fatma Taskin, 2000. "A Kuznets Curve in Environmental Efficiency: An Application on OECD Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(1), pages 21-36, September.
    8. Pannell, David J. & Glenn, Nicole A., 2000. "A framework for the economic evaluation and selection of sustainability indicators in agriculture," Ecological Economics, Elsevier, vol. 33(1), pages 135-149, April.
    9. Pollak, Robert A & Sickles, Robin C & Wales, Terence J, 1984. "The CES-Translog: Specification and Estimation of a New Cost Function," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 602-607, November.
    10. Rolf Färe & Shawna Grosskopf, 2000. "Theory and Application of Directional Distance Functions," Journal of Productivity Analysis, Springer, vol. 13(2), pages 93-103, March.
    11. Pittman, Russell W, 1983. "Multilateral Productivity Comparisons with Undesirable Outputs," Economic Journal, Royal Economic Society, vol. 93(372), pages 883-891, December.
    12. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
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    Cited by:

    1. repec:ipg:wpaper:2014-479 is not listed on IDEAS
    2. Subhash C. Ray & Kankana Mukherjee & Anand Venkatesh, 2016. "Nonparametric Measures of Efficiency in the Presence of Undesirable Outputs: A By-production Approach with Weak Disposability," Working papers 2016-04, University of Connecticut, Department of Economics.
    3. repec:ipg:wpaper:2014-491 is not listed on IDEAS
    4. Shkarlet, Serhiy & Petrakov, Iaroslav, 2013. "Environmental Taxation Evolution in Ukraine: Trends, Challenges and Outlook," MPRA Paper 45168, University Library of Munich, Germany, revised 18 May 2013.
    5. Annageldy Arazmuradov, 2016. "Economic prospect on carbon emissions in Commonwealth of Independent States," Economic Change and Restructuring, Springer, vol. 49(4), pages 395-427, November.
    6. repec:spr:empeco:v:54:y:2018:i:1:d:10.1007_s00181-017-1234-5 is not listed on IDEAS

    More about this item


    Pollution; environmental efficiency; shadow prices; bootstrap; countries in transition; parametric and nonparametric techniques; bootstrap;

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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