On modeling pollution-generating technologies

Sushama Murty, R. Robert Russell and Steven B. Levkoff

Journal of Environmental Economics and Management, 2012, vol. 64, issue 1, 117-135

Abstract: We argue analytically that many commonly used models of pollution-generating technologies, which treat pollution as a freely disposable input or as a weakly disposable and null-joint output, may generate unacceptable implications for the trade-offs among inputs, outputs, and pollution. We show that the correct trade-offs in production are best captured if a pollution-generating technology is modeled as an intersection of an intended-production technology of the firm and nature's residual-generation set. The former satisfies standard disposability properties, while the latter violates free (strong) disposability of pollution and pollution-causing inputs. As a result, the intersection—which we call a by-production technology—violates standard free disposability of pollution and pollution-causing inputs. Employing data envelopment analysis on an electric-power-plant database, we illustrate shortcomings, under by-production, of two popular efficiency indexes: the hyperbolic and directional-distance-function indexes. We propose and implement an alternative index with superior properties. Under by-production, most efficiency indexes decompose very naturally into intended-production and environmental efficiency indexes. This decomposition is difficult to find under alternative specifications of pollution-generating technologies.

Keywords: Pollution-generating technologies; Free disposability; Weak disposability; Data envelopment analysis; Environmental and technical efficiency measurement (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (267)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:64:y:2012:i:1:p:117-135

DOI: 10.1016/j.jeem.2012.02.005

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