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Productivity and profitability changes in the U.S. electric power plants during SO2 trading regime


  • Kumar, Surender

    () (National Institute of Public Finance and Policy)


We examine the productivity and profitability changes in the US electric generating plants during the SO2 trading regime. Input distance function is used to compute the cumulative Malmquist productivity and Fisher productivity indexes. By exploiting the duality between cost and input distance functions, we obtain a measure of profitability, as an approximation for the Fisher productivity index. We measure productivity and profitability changes when SO2 emissions are ignored in the production technology and when these emissions appear as bad output. We find that the productivity is higher when the bad outputs are modeled as weakly disposable in comparison to the situation when they are modeled as freely disposable. But we do not find any significant difference in profitability under these alternative methods of modeling of production technology concerning the disposability of bad outputs.

Suggested Citation

  • Kumar, Surender, 2003. "Productivity and profitability changes in the U.S. electric power plants during SO2 trading regime," Working Papers 03/3, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:03/3
    Note: Working Paper 3, 2003

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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.
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    9. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    10. Pittman, Russell W, 1983. "Multilateral Productivity Comparisons with Undesirable Outputs," Economic Journal, Royal Economic Society, vol. 93(372), pages 883-891, December.
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    More about this item


    Electricity generating plants ; Productivity ; Profitability ; SO2 ; Allowance program;

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy


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