Bayesian Approach to Disentangling Technical and Environmental Productivity

Econometrics, Forthcoming

21 Pages Posted: 9 Jun 2015

See all articles by Emir Malikov

Emir Malikov

University of Nevada, Las Vegas

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics

Efthymios G. Tsionas

Athens University of Economics and Business - Department of Economics

Date Written: June 2, 2015

Abstract

This paper models the firm's production process as a system of simultaneous technologies for desirable and undesirable outputs. Desirable outputs are produced by transforming inputs via the conventional transformation function, whereas (consistent with the material balance condition) undesirable outputs are by-produced via the so-called "residual generation technology". By separating the production of undesirable outputs from that of desirable outputs, not only do we ensure that undesirable outputs are not modeled as inputs and thus satisfy costly disposability, but we are also able to differentiate between the traditional (desirable-output-oriented) technical productivity and the undesirable-output-oriented environmental, or so-called "green", productivity. To measure the latter, we derive a Solow-type Divisia environmental productivity index which, unlike conventional productivity indices, allows crediting the ceteris paribus reduction in undesirable outputs. Our index also provides a meaningful way to decompose environmental productivity into environmental technological and efficiency changes.

Keywords: bad output, by-production, efficiency, MCMC, productivity

JEL Classification: C11, C30, C43, D24

Suggested Citation

Malikov, Emir and Kumbhakar, Subal C. and Tsionas, Efthymios (Efthymios) G., Bayesian Approach to Disentangling Technical and Environmental Productivity (June 2, 2015). Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2615825

Emir Malikov (Contact Author)

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics ( email )

Binghamton, NY 13902-6000
United States

Efthymios (Efthymios) G. Tsionas

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 8203 (Phone)
+301 8203 301 (Fax)

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