Murty, Sushama and Russell, R. Robert (2010) On modeling pollution-generating technologies. Working Paper. University of Warwick. Dept. of Economics, Coventry.

PDF WRAP_Murty2_twerp_931.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (452Kb)

Abstract

We distinguish between intended production and residual generation and introduce the concept of by-production. We show that by-production provides the fundamental explanation for the positive correlation that is observed between intended production and residual generation. Most of the existing literature attributes the observed positive correlation to abatement options available to firms. We show that abatement options of firms add to the phenomenon of by-production in strengthening the observed positive correlation. The existing literature usually does not explicitly model abatement options of firms, but considers a reduced form of he technology, which satisfies standard disposability assumptions with respect to all inputs and intended outputs. We show that more than one implicit production relation is needed to capture all the technological trade-offs that are implied by by-production. From our model, we are able to derive a reduced form of the technology that is in the spirit of the one that is usually studied in the literature. However, we nd that our reduced form technology violates standard disposability with respect to inputs and intended outputs that cause pollution. We derive implications from the phenomenon of by-production for the econometric and Data Envelopment Analysis (DEA) speci cations of pollution-generating technologies. We derive a DEA specification of technologies that satisfy by-production. Such a specification can be used to study issues relating to measurement of efficiency, marginal abatement costs, productivity, etc., of firms with technologies that generate pollution.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Pollution -- Mathematical models, Industries -- By-products, Environmental economics, Input-output analysis
Series Name:	Warwick economics research paper series (TWERPS)
Publisher:	University of Warwick. Dept. of Economics
Place of Publication:	Coventry
Date:	2010
Volume:	Vol.2010
Number:	No.931
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	Aryes, R. U., and A. V. Kneese [1969], “Production, Consumption and Externalities," American Economic Review 59: 282-297. Barbera, A. J., and V. McConnell [1990], “The Impact of Environmental Regulation on Industry Productivity: Direct and Indirect E ects," Journal of Environmental Economics and Management 18: 50-65. Baumol, W. J., and W. E. Oates [1988], The Theory of Environmental Policy, Second Edition, Cambridge: Cambridge University Press. Boyd, G. A., and J. D. McClelland [1999], “The Impact of Environmental Constraints on Productivity Improvement in Integrated Paper Plants," Journal of Environmental Economics and Management 38: 121-142. Coelli, T., L. Lauwers, and G. van Huylenbroeck [2007], “Environmental Efficiency Measurement and the Materials Balance Condition," Journal of Productivity Analysis 28: 3-12. Coggins, J. S., and J. R. Swinton [1996], “The Price of Pollution: A Dual Approach to Valuing SO2 Allowances," Journal of Environmental Economics and Management 30: 58-72. Cropper, M. L., and W. E. Oates [1992], “Environmental Economics: A Survey," Journal of Economic Literature 30: 675-740. Färe, R., S. Grosskopf, C. A. K. Lovell, and C. Pasurka [1989], “Multilateral Productivity Comparisons When Some Outputs are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics 71: 90-98. Färe, R., S. Grosskopf, C. A. K. Lovell, and S. Yaisawarng [1993], “Derivation of Shadow Prices for Undesirable Outputs: A Distance Function Approach," The Review of Economics and Statistics 75: 374-380. Färe, R., S. Grosskopf, D. W. Noh, and W. Weber [2005], “Characteristics of a Polluting Technology: Theory and Practice," Journal of Econometrics 126: 469-492. R. Färe, S. Grosskopf, and C. Pasurka [1986], “E_ects of Relative E_ciency in Electric Power Generation Due to Environmental Controls," Resources and Energy 8: 167-184. Färe, R., and D. Primont [1995], Multi-Output Production and Duality: Theory and Appli- cations, Boston: Kluwer Academic Press, 1995. Hailu A., and T. S. Veeman [2000], “Environmentally Sensitive Productive Analysis of the Canadian Pulp and Paper Industry, 1959-1994: An Input Distance Function Approach," Journal of Environmental Economics and Management 40: 251-274. F_rsund, F. [2009], “Good Modelling of Bad Outputs: Pollution and Multiple-Output Production," International Review of Environmental and Resource Economics 3: 1-38. Frisch, R. [1965], Theory of Production, Dordrecht: D. Reidel Publishing Company. Malmquist, S. [1953], “Index Numbers and Indi_erence Surfaces," Trabajos de Estatistica, 4: 209-242. Murty, M. N., and S. Kumar [2002], “Measuring Cost of Environmentally Sustainable Industrial Development in India: A Distance Function Approach," Environment and Development Economics 7: 467-86. Murty, M. N., and S. Kumar [2003], “Win-Win Opportunities and Environmental Regulation: Testing of Porter Hypothesis for Indian Manufacturing Industries," Journal of Environmental Management 67: 139-44. Murty, M. N., S. Kumar, and M. Paul [2006], “Environmental Regulation, Productive E_ciency, and Cost of Pollution Abatement: A Case Study of Sugar Industry in India," Journal of Environmental Management 79: 1-9. Murty, S. [2010], “Externalities and Fundamental Nonconvexities: A Reconciliation of Approaches to General Equilibrium Externality Modeling and Implications for Decentralization," Journal of Economic Theory 145: 331-53. Murty, S., and R. R. Russell [2005], “Externality Policy Reform: A General Equilibrium Analysis," Journal of Public Economic Theory 7: 117-150. Pittman, R. W. [1983], “Multilateral Productivity Comparisons with Undesirable Outputs," The Economic Journal 93: 883-391. Shephard, R. W. [1953], Cost and Production Functions, Princeton: Princeton University Press. Shephard, R. W. [1974], Indirect Production Functions, Meisenheim Am Glan: Verlag Anton Hain. Zhou P., B. W. Ang, and K. L. Poh [2008], “A Survey of Data Envelopment Analysis in Energy and Environmental Studies," European Journal of Operational Research 189: 1-18.
URI:	http://wrap.warwick.ac.uk/id/eprint/3528

Request changes to a record

Actions (login required)

View Item