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Which Bad is Worst? An Application of Leif Johansen’s Capacity Model

Author

Listed:
  • Färe, Rolf

    () (Dept. of Economics, Oregon State University)

  • Grosskopf, Shawna

    () (Dept. of Applied Economics, Oregon State University)

  • Lundgren, Tommy

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

  • Marklund, Per-Olov

    () (CERUM)

  • Zhou, Wenchao

    () (CERUM)

Abstract

The production of desirable (good) outputs is frequently accompanied by unintended production of undesirable (bad) outputs. If two or more of these undesirable outputs are produced as byproducts, one may ask: ‘Which bad is worst?’ By worst we mean which bad inhibits the production of desirable outputs the most if it is regulated. We develop a model based on Leif Johansen’s capacity framework by estimating the capacity limiting effect of the bads. Our model resembles what is referred to as the von Liebig Law of the Minimum, familiar from the agricultural economics literature. To illustrate our model we apply our approach to a firm level data set from the Swedish paper and pulp industry.

Suggested Citation

  • Färe, Rolf & Grosskopf, Shawna & Lundgren, Tommy & Marklund, Per-Olov & Zhou, Wenchao, 2013. "Which Bad is Worst? An Application of Leif Johansen’s Capacity Model," CERE Working Papers 2013:2, CERE - the Center for Environmental and Resource Economics.
  • Handle: RePEc:hhs:slucer:2013_002
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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2013-2.pdf
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    References listed on IDEAS

    as
    1. Fare, R. & Grosskopf, S. & Pasurka, C., 1986. "Effects on relative efficiency in electric power generation due to environmental controls," Resources and Energy, Elsevier, vol. 8(2), pages 167-184, June.
    2. Fare, Rolf & Grosskopf, Shawna & Kokkelenberg, Edward C, 1989. "Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 655-666, August.
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    Cited by:

    1. Badau, Flavius, 2015. "Ranking trade resistance variables using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 247(3), pages 978-986.

    More about this item

    Keywords

    von Liebig Law of the Minimum; DEA; emissions; regulation;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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