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On modeling pollution-generating technologies

Author

Listed:
  • Sushama Murty

    (Department of Economics, University of Exeter)

  • R. Robert Russell

    (Department of Economics, University of California)

  • Steven B. Levkoff

    (Department of Economics, University of California)

Abstract

Distinguishing between intended ("good") production and unintended or residual ("bad") generation, we introduce the concept of by-production. In by-production technologies, pollution is an output that satisfies a "costly disposability" assumption and violates standard free disposability with respect to pollution-causing inputs. Our approach therefore differs substantially from standard approaches to modeling pollution-generating technologies. We show how by-production can be modeled using data envelopment analysis (DEA) methods. With an electric power plant database, we illustrate shortcomings under by-production of two popular efficiency indexes: the hyperbolic index and the directional distance function. We propose and implement an alternative efficiency index with superior properties.

Suggested Citation

  • Sushama Murty & R. Robert Russell & Steven B. Levkoff, 2011. "On modeling pollution-generating technologies," Discussion Papers 1101, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:1101
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    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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