Nonparametric Measures of Efficiency in the Presence of Undesirable Outputs: A By-production Approach with Weak Disposability

Subhash Ray, Kankana Mukherjee and Anand Venkatesh
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Anand Venkatesh: Institute of Rural Management

No 2016-04, Working papers from University of Connecticut, Department of Economics

Abstract: In empirical research on productivity measurement adjusted for undesirable outputs on the side, the good and the bad outcomes are treated as joint-products of the underlying production process. In the present paper, following Murty, Russell, and Levkoff, we conceptualize the good output as technologically separable from the bad output. Moreover, we set up an integrated DEA optimization problem over the intersection of these two sub-technologies to measure the efficiency of a firm that produces a bad output alongside the good output. In an empirical illustration of our methodology, we use country level data for an unbalanced panel of 64 countries over the years 1986 through 2011 where per capita GDP is the good and per capita CO2 emission is the bad output. Weak disposability and null jointness is assumed between the bad output and fuel, the polluting input, rather than the good and bad outputs. We then utilize our DEA results to compute opportunity costs of a targeted reduction in CO2 emission in terms of required dollar amounts of reduction in per capita GDP for the individual countries in selected years.

Keywords: Bad Output; Weak Disposability; Null jointness; By-production (search for similar items in EconPapers)
JEL-codes: C61 Q52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-03
New Economics Papers: this item is included in nep-eff
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Citations: View citations in EconPapers (1)

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