Modeling Emission-Generating Technologies: Reconciliation of Axiomatic and By-Production Approaches
Paper number: 16/03
Paper date: June 2016
Paper Category: Discussion Paper
Sushama Murty and R. Robert Russell
We study the link between the by-production approach of Murty, Russell, and Levkoff [2012 J. Environ. Econ.] (MRL) and the axiomatic approach of Murty [2015 Econ. Theory] to modelling emission-generating technologies. We show that the by-production technology of MRL, obtained as an intersection of two independent sub-technologies, satises all the Murty axioms. Conversely, a technology satisfying all these axioms decomposes into two independent subtechnologies having the MRL features. These two sub-technologies, reflect, respectively, the relations between goods in intended-output production designed by human engineers, on the one hand, and the emission-generating mechanism of nature governed by material-balance considerations, on the other. In either approach, the technology can be functionally represented by two radial distance functions with well-defined properties. These distance functions can also serve as measures of technological and environmental effciency. We exploit the link between the by-production and axiomatic approaches to offer preliminary suggestions about suitable functional forms for the empirical estimation of the two distance functions.
JEL classification codes: D20, D24, Q50
Keywords: emission-generating technologies, by-production technologies, free input and output disposability, costly disposability, distance function.