We can use different techniques to value the environmental externalities. For instance, by using distance functions, we can derive the shadow prices of bad outputs e.g. Green Gas Houses (GHGs) of crop productions through two well known parametric (SFA) and non-prametric (DEA) methods.
Assuming there is no mechanism (e.g. regulations) that compose the ability of farmers in production process, which disposability properties assumption of technology (i.e. weak or strong disposability) is proper to estimate marginal abatement costs of GHGs?
What should be the rational sign of GHGs shadow prices in this spacial case (i.e. with no regulation)? Positive or negative?
Is it better these gases are treated as outputs or inputs when we want to construct the production technology?
Thank you in advance for your help.
The value of environmental externalities depends on the perspective analyzed. If we take the example you cite of GHG related to crop production the shadow price from the perspective of the farmer is foregone income for decreased GHG emissions. From a society's purely economic point of view, in the absence of mechanisms to enforce GHG reductions from crop production, is the lowest cost alternate measure that will decrease GHG emissions (in any other sector) over which there is control.
You could also look at the effects of the environmental externality. What costs does it create. what are the mitigations costs.
It also depends on the scale at which you are doing your analysis. If you price environmental externalities and act on those prices at a local level and this leads to higher externalities elsewhere, then you should have taken that into account. if decreasing GHG emissions from crop production implies lower production that will result in production shifts to systems with higher GHG emissions than the price of the externality at the point of analysis is lower.
To get a complete picture you need to take into account the dynamic feedback loops.
I would not use the term "bad outputs" but pollution instead.
look for willingness to pay studies that show how much a farmer/taxpayer
would be willing to pay to reduce pollution in their locality. often via a tax
they give a shadow price for pollution reduction you can use
The value of environmental externalities depends on the perspective analyzed. If we take the example you cite of GHG related to crop production the shadow price from the perspective of the farmer is foregone income for decreased GHG emissions. From a society's purely economic point of view, in the absence of mechanisms to enforce GHG reductions from crop production, is the lowest cost alternate measure that will decrease GHG emissions (in any other sector) over which there is control.
You could also look at the effects of the environmental externality. What costs does it create. what are the mitigations costs.
It also depends on the scale at which you are doing your analysis. If you price environmental externalities and act on those prices at a local level and this leads to higher externalities elsewhere, then you should have taken that into account. if decreasing GHG emissions from crop production implies lower production that will result in production shifts to systems with higher GHG emissions than the price of the externality at the point of analysis is lower.
To get a complete picture you need to take into account the dynamic feedback loops.
Hi Here are few links which may be helpful to you. Regards
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0CC0QFjAC&url=http%3A%2F%2Fwww.ncbi.nlm.nih.gov%2Fpubmed%2F12141157&ei=54HwVOrALca_uASa4oDgBg&usg=AFQjCNEUrpOmMD6dPxfnLfVK_qnTfzTdjA&sig2=TBoL6jZgi0z82HGwpXqA4Q&bvm=bv.87269000,d.c2E
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fweber.ucsd.edu%2F~carsonvs%2Fpapers%2F105.doc&ei=54HwVOrALca_uASa4oDgBg&usg=AFQjCNFIjQdVzaK0k360KCgkCYYGW52BdA&sig2=TJ5XRQbxJblT26fHG6jGFg&bvm=bv.87269000,d.c2E
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCQQFjAB&url=http%3A%2F%2Fdocuments.apec.umn.edu%2FSQiEnvF04.pdf&ei=54HwVOrALca_uASa4oDgBg&usg=AFQjCNErQYkgO_LJhDQ3xjUswEHrFLdHQQ&sig2=Pin7qTgQ_dPcDjhoDQvG1g&bvm=bv.87269000,d.c2E
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&ved=0CEQQFjAF&url=http%3A%2F%2Fwww.oecd-ilibrary.org%2Fenvironment-and-sustainable-development%2Festimating-shadow-prices-of-pollution-in-selected-oecd-countries_5jxvd5rnjnxs-en&ei=54HwVOrALca_uASa4oDgBg&usg=AFQjCNGOJuOpka4HfBbPMqXOtzwdV2jv3g&sig2=_vmVEIvd5eI8BZx5OB4Fuw&bvm=bv.87269000,d.c2E
Dear Morteza,
Your question is finally more correlated to an in-depth comprehension of weak versus strong disposability of undesirable outputs than the estimation of shadow prices.
The paper suggested by Sarwan Kubar Dubey are indeed crucial in understanding the introduction of these specific type of outputs into the production tehchnology in efficiency frontier analysis.
In addition, I would add reference from Kuosmanen and Kazemi Matin (2011), Hailu
and Veenman (2001), Leleu (2013), which focus more on primal-dual equivalency. Indeed, modification of the primal model (weak disposability, null relation,...) impact the dual version of the same model, and thus the nature of undesirable outputs shadow prices (sign, bounds).
Finally, as Gideon Kruseman underlined it, the point of view adopted on GHG can influence your results. The joint implementation of Directional Distance Function (DDF) and efficiency frontier model with undesirable outputs is thus recomended, and already in the literature (Picazo-Tadeo et Prior (2009), Chung et al. (1997), Kuntz et Sulz (2011)...). Indeed, DDF allows to consider different direction to reach the efficienct frontier according to the stakeholder's point of view.
Good luck to develop your model and I hope to read your research soon.
David
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