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Time substitution for environmental performance: The case of Swedish manufacturing

Moriah Bostian (), Rolf Färe, Shawna Grosskopf, Tommy Lundgren and William L. Weber ()
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Moriah Bostian: Lewis and Clark College
Rolf Färe: Oregon State University
Shawna Grosskopf: Oregon State University
Tommy Lundgren: Umeå University
William L. Weber: Southeast Missouri State University

Empirical Economics, 2018, vol. 54, issue 1, No 6, 129-152

Abstract: Abstract We extend recent advances in time substitution modeling to a directional distance function framework, in order to examine the environmental performance of firms in Sweden’s pulp and paper industry for the years 2002–2008. Our data allow us to estimate the optimal reallocation of environmental investments, expenditures and energy use to simultaneously maximize production output and minimize emissions in the years immediately before and after the implementation of the European Union Emissions Trading Scheme. We find some evidence of overall productivity decline when considering both emissions and output objectives, due primarily to technological decline, and that cumulative dynamic inefficiency outweighs static inefficiency. A comparison of optimal investment with observed investment indicates that firms could have improved their performance by reallocating environmental investments to early periods and production-oriented investment to later periods.

Keywords: Time substitution; Dynamic efficiency; Environmental performance; Environmental investment; DEA; D24; Q50 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s00181-016-1180-7

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