Environmental regulations and allocative efficiency: application to coal-to-gas substitution in the U.S. electricity sector

Kenneth Løvold Rødseth ()
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Kenneth Løvold Rødseth: Institute of Transport Economics - Norwegian Centre for Transport Research

Journal of Productivity Analysis, 2017, vol. 47, issue 2, No 3, 129-142

Abstract: Abstract The environmental economics literature has for a long time been occupied with the relationships between environmental regulations, technical efficiency, and productivity growth. This paper extends this discussion by taking up environmental regulations’ implications for allocative efficiency. It establishes a model framework that allows disentangling managerial and regulatory induced allocative efficiencies, and utilizes Data Envelopment Analysis to a sample of 67 coal-to-gas substituting power plants observed from 2002 to 2008 to calculate Nerlovian profit efficiencies and their technical and allocative efficiency components. The empirical results illustrate that failing to control for environmental regulations leads to overestimation of managerial allocative efficiencies by ignoring compliance costs. Marginal abatement cost estimates that are in line with allowance prices for NOx and SO2 are further obtained.

Keywords: Polluting technologies; Materials balance condition; Nerlovian efficiency; Data envelopment analysis (search for similar items in EconPapers)
JEL-codes: C61 D20 Q40 Q52 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11123-017-0495-5

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