Analyzing Interplant Marginal Abatement Cost Differences: A Directional Output Distance Function Approach

Marklund, Per-Olov ()
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Marklund, Per-Olov: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 618, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: The purpose of this paper is to compute and evaluate producers’ marginal abatement costs (MACs). These costs are obtained by calculating shadow prices of bad outputs from the production technology, which is represented by the estimated directional output distance function. To be more specific, this paper considers the Swedish pulp industry when the regulatory authority has granted each producing plant a maximally allowed emission level. In each case, area residents and other parties concerned have been allowed to express their views, which possibly prepared the way for other factors than prescribed by environmental law, to influence the stringency of the finally allowed emission levels and, therefore, the MACs. The main focus is on whether the calculated MACs reveal that differences between counties in, e.g., economical characteristics, were influential when the authority, during 1983-1990, restricted 12 geographically scattered pulp plants regarding emissions. The result indicates that the MACs vary between many of the plants and that county differences were taken into account when imposing environmental restrictions on the plants.

Keywords: bad output; environmental regulation; marginal abatement cost; shadow price; parametric directional output distance function (search for similar items in EconPapers)
JEL-codes: C61 D24 L51 Q53 R38 (search for similar items in EconPapers)
Date: 2003-12-16
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