Cost-constrained measures of environmental efficiency: a material balance approach

Aldanondo, Ana M. and Casasnovas, Valero L. and Almansa, M. Carmen (2016): Cost-constrained measures of environmental efficiency: a material balance approach.

Abstract

Joint cost-environmental efficiency analysis based on the material balance principle (MBP) has an important short-coming, in that the measures of allocative efficiency it produces do not fully integrate environmental and economic outcomes. Their limitation lies in their failure to take into account some decision-making units (DMU) use a combination of inputs that is more environmentally-harmful than that of the least-cost unit, or, more rarely, more costly than that of the least-polluting unit. Input substitution can therefore bring both environmental and economic benefits. This paper develops a method for differentiating between environmental allocative efficiency gains that involve an economic trade-off and those that do not. Drawing insight from the literature on multi-criteria analysis, we extend the MBP approach to new measures of cost-constrained environmental efficiency using data envelopment analysis (DEA). The proposed approach is illustrated by an application geared to assessing the efficiency of a sample of greenhouse horticultural production units in Almeria, Spain. The results for this case show that it is possible to increase environmental allocative efficiency by up to 34 % on average without incurring additional costs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cross constrained cost-environmental efficiency, material balance condition, nitrogen pollution, green house horticulture
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q50 - General

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