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Capturing the least costly way of reducing pollution: A shadow price approach

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  • Rødseth, Kenneth Løvold

Abstract

The production analysis literature is increasingly concerned with estimating marginal abatement costs. Yet, most studies do not emphasize the ways in which pollutants may be reduced and their costs, which makes them unable to identify the least costly compliance strategy. This paper utilizes the materials balance principle to relate pollution to the employment of material inputs. A production model which allows input and output substitution, downscaling of operations, pollution control, and emission permits purchases as compliance strategies is proposed, and the implications of joint and non-joint pollution controls for the trade-off between pollutants and desirable outputs are considered. Marginal abatement costs, reflecting the least costly way of compliance, are derived by exploiting the duality between the directional distance function and the profit function.

Suggested Citation

  • Rødseth, Kenneth Løvold, 2013. "Capturing the least costly way of reducing pollution: A shadow price approach," Ecological Economics, Elsevier, vol. 92(C), pages 16-24.
    • Handle: RePEc:eee:ecolec:v:92:y:2013:i:c:p:16-24
    DOI: 10.1016/j.ecolecon.2013.04.006
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    More about this item

    Keywords

    Marginal abatement costs; Materials balance condition; Directional distance function;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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