Estimating the materials balance condition: A stochastic frontier approach

Benjamin Hampf

No 226, Darmstadt Discussion Papers in Economics from Darmstadt University of Technology, Department of Law and Economics

Abstract: In this paper we propose a stochastic formulation of the materials balance condition which imposes physical constraints on production technologies. The estimation of the model involves a composed error term structure that is commonly applied in the literature on stochastic frontier analysis of productive efficiency. Moreover, we discuss how OLS, maximum likelihood and Bayesian methods can be used to estimate the proposed model. In contrast to previous approaches our model allows to estimate the physical limitations to production possibilities in the presence of statistical noise and depends on substantially weaker data requirements. We demonstrate the applicability of our new approach by estimating the materials balance condition for SO2 and CO2 using a sample of fossil-fueled power plants in the United States.

Keywords: Materials balance condition; Abatement efficiency; Stochastic frontier analysis; Laws of thermodynamics; Applied econometrics; Environmental economics (search for similar items in EconPapers)
JEL-codes: C51 D24 Q40 Q53 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ecm, nep-eff and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:darddp:226

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