Bad Outputs

Sushama Murty () and R. Robert Russell ()
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Sushama Murty: Jawaharlal Nehru University
R. Robert Russell: University of California, Riverside

Chapter 12 in Handbook of Production Economics, 2022, pp 483-535 from Springer

Abstract: Abstract Inadequacies of the traditional, single-equation representations of models of emission-generating technologies prominently associated with the classic book by Baumol and Oates (The theory of environmental policy, 1st and 2nd edn. Cambridge University Press, Cambridge, 1975, 1988) are first laid out. In particular, these models lack the “monotonicity degrees of freedom” to capture adequately the complex trade-offs in the production of unintended as well as intended outputs using emission-generating inputs. Reprising ideas in the classic 1965 book on Theory of Production by Ragnar Frisch, it is shown that the use of multiple functional restrictions, a phenomenon referred to as by-production in Murty, Russell, and Levkoff (J Environ Econ Manag 64:117–135, 2012), facilitates the modeling of pollution-generating technologies. In particular, a by-production technology is obtained as the intersection of an intended-output sub-technology and an unintended-output sub-technology. These principles are illustrated by sketching a model of coal-fired electrical power generation. A data envelopment analysis (DEA) methodology for measuring technical efficiency under the by-production approach is also discussed.

Date: 2022
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DOI: 10.1007/978-981-10-3455-8_3

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