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Nonparametric Measures of Efficiency in the Presence of Undesirable Outputs: A By-production Approach with Weak Disposability

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  • Subhash C. Ray

    (University of Connecticut)

  • Kankana Mukherjee

    (Babson College)

  • Anand Venkatesh

    (Institute of Rural Management)

Abstract

In empirical research on productivity measurement adjusted for undesirable outputs on the side, the good and the bad outcomes are treated as joint-products of the underlying production process. In the present paper, following Murty, Russell, and Levkoff, we conceptualize the good output as technologically separable from the bad output. Moreover, we set up an integrated DEA optimization problem over the intersection of these two sub-technologies to measure the efficiency of a firm that produces a bad output alongside the good output. In an empirical illustration of our methodology, we use country level data for an unbalanced panel of 64 countries over the years 1986 through 2011 where per capita GDP is the good and per capita CO2 emission is the bad output. Weak disposability and null jointness is assumed between the bad output and fuel, the polluting input, rather than the good and bad outputs. We then utilize our DEA results to compute opportunity costs of a targeted reduction in CO2 emission in terms of required dollar amounts of reduction in per capita GDP for the individual countries in selected years.

Suggested Citation

  • 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.
  • Handle: RePEc:uct:uconnp:2016-04
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    References listed on IDEAS

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    1. Charles Blackorby & Sushama Murty, 2013. "Unit Versus Ad Valorem Taxes: The Private Ownership of Monopoly in General Equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(4), pages 547-579, August.
    2. 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.
    3. Thomas Covert & Michael Greenstone & Christopher R. Knittel, 2016. "Will We Ever Stop Using Fossil Fuels?," Journal of Economic Perspectives, American Economic Association, pages 117-138.
    4. Forsund, Finn R., 2009. "Good Modelling of Bad Outputs: Pollution and Multiple-Output Production," International Review of Environmental and Resource Economics, now publishers, vol. 3(1), pages 1-38, August.
    5. Murty, Sushama & Robert Russell, R. & Levkoff, Steven B., 2012. "On modeling pollution-generating technologies," Journal of Environmental Economics and Management, Elsevier, vol. 64(1), pages 117-135.
    6. Fare, Rolf & Grosskopf, Shawna & Noh, Dong-Woon & Weber, William, 2005. "Characteristics of a polluting technology: theory and practice," Journal of Econometrics, Elsevier, vol. 126(2), pages 469-492, June.
    7. Murty, Sushama & Russell, R. Robert, 2010. "On modeling pollution-generating technologies," The Warwick Economics Research Paper Series (TWERPS) 931, University of Warwick, Department of Economics.
    8. Rolf Färe & Shawna Grosskopf, 1998. "Shadow Pricing of Good and Bad Commodities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 584-590.
    9. Fare, Rolf, et al, 1989. "Multilateral Productivity Comparisons When Some Outputs Are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 90-98, February.
    10. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, pages 675-740.
    11. 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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    More about this item

    Keywords

    Bad Output; Weak Disposability; Null jointness; By-production;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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