Shadow Prices of CO2 Emissions at U.S. Electric Utilities: A Random-Coefficient, Random-Directional-Vector Directional Output Distance Function Approach

Forthcoming in: Empirical Economics

43 Pages Posted: 20 Jan 2017

See all articles by Guohua Feng

Guohua Feng

University of North Texas

Chuan Wang

Monash University

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: November 18, 2016

Abstract

We estimate the shadow prices of CO2 emissions of electric utilities in the United States over the period from 2001 to 2014, using a random-coefficient, random-directional-vector directional output distance function (DODF) model. The main feature of this model is that both its coefficients and directional vector are allowed to vary across firms, thus allowing different firms to have different production technologies and to follow different growth paths. Our Bayes factor analysis indicates that this model is strongly favored over the commonly-used fixed-coefficient DODF model. Our results obtained from this model suggest that the average annual shadow price of CO2 emissions ranges from $61.62 to $105.72 (in 2001 dollars) with an average of $83.12. The results also suggest that the firm-specific average shadow price differs significantly across electric utilities. In addition, our estimates of the shadow price of CO2 emissions show an upward trend for both the sample electric utilities as a whole and the majority of the individual sample electric utilities.

Keywords: Shadow Price of CO2 Emissions; Directional Output Distance Function; Bayesian Estimation

JEL Classification: D24; C11; Q54

Suggested Citation

Feng, Guohua and Wang, Chuan and Serletis, Apostolos, Shadow Prices of CO2 Emissions at U.S. Electric Utilities: A Random-Coefficient, Random-Directional-Vector Directional Output Distance Function Approach (November 18, 2016). Forthcoming in: Empirical Economics. Available at SSRN: https://ssrn.com/abstract=2901801

Guohua Feng

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

Chuan Wang

Monash University

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

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