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

  • 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)

Registered author(s):

    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.

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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2013-2.pdf
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    Paper provided by CERE - the Center for Environmental and Resource Economics in its series CERE Working Papers with number 2013:2.

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    Length: 21 pages
    Date of creation: 20 Mar 2013
    Date of revision:
    Handle: RePEc:hhs:slucer:2013_002
    Contact details of provider: Web page: http://www.cere.se

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    1. 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 655-66, August.
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