Modeling Emission-Generating Technologies: Reconciliation of Axiomatic and By-Production Approaches

Paper number: 16/03

Paper date: June 2016

Year: 2016

Paper Category: Discussion Paper

Authors

Sushama Murty and R. Robert Russell

Abstract

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, satis es 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.

Modeling Emission-Generating Technologies: Reconciliation of Axiomatic and By-Production Approaches Modeling Emission-Generating Technologies: Reconciliation of Axiomatic and By-Production Approaches