The Measurement of Environmental Economic Inefficiency with Pollution-generating Technologies

48 Pages Posted: 7 May 2019

See all articles by Juan Aparicio

Juan Aparicio

University Miguel Hernandez - Center of Operations Research

Magdalena Kapelko

Wroclaw University of Economics, Institute of Applied Mathematics, Department of Logistics

José L. Zofío

Universidad Autónoma de Madrid; Erasmus Research Institute of Management (ERIM)

Date Written: May 1, 2019

Abstract

This study introduces the measurement of environmental inefficiency from an economic perspective that integrates, in addition to marketed good outputs, the negative environmental externalities associated with bad outputs. We develop our proposal using the latest by- production models that consider two separate and parallel technologies: a standard technology generating good outputs, and a polluting technology for the by-production of bad outputs (Murty et al., 2012). While research into environmental inefficiency incorporating undesirable or bad outputs from a technological perspective is well established, no attempts have been made to extend it to the economic sphere. Our model defines an economic inefficiency measure that accounts for suboptimal behavior in the form of foregone private revenue and social cost excess (environmental damage). We show that economic inefficiency can be consistently decomposed according to technical and allocative criteria, considering the two separate technologies and market prices, respectively. We illustrate the empirical implementation of our approach on a set of established and complementary models using a dataset on agriculture at the level of US states.

Keywords: Environmental economic inefficiency, Pollution-generating technologies, Technical and allocative efficiency measurement, Data envelopment analysis, US agriculture

Suggested Citation

Aparicio, Juan and Kapelko, Magdalena and Zofío, Jose L., The Measurement of Environmental Economic Inefficiency with Pollution-generating Technologies (May 1, 2019). ERIM Report Series Reference . Available at SSRN: https://ssrn.com/abstract=3383443 or http://dx.doi.org/10.2139/ssrn.3383443

Juan Aparicio

University Miguel Hernandez - Center of Operations Research ( email )

Instituto CIO
Av. de la Universidad s/n.
Elche (Alicante), Alicante 03202
Spain

Magdalena Kapelko

Wroclaw University of Economics, Institute of Applied Mathematics, Department of Logistics ( email )

Komandorska 118/120
Wrocław, 53-345
Poland

HOME PAGE: http://https://sites.google.com/site/magdalenakapelko/

Jose L. Zofío (Contact Author)

Universidad Autónoma de Madrid ( email )

Francisco Tomás y Valiente, 5
Madrid, Madrid 28049
Spain
914972406 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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