Production and the Environment

  • Reference work entry
  • First Online:
Handbook of Production Economics
  • 1440 Accesses

Abstract

Production theory offers a mathematical framework for modeling important relationships between production activities and the environment. These include the generation and valuation of production-related environmental effects, environmental contributions to production processes, and production effects of environmental management practices. In this chapter, we review the seminal and recent empirical work in each of these areas. We anchor our review to multi-input/multi-output production processes, as these make up a large share of environmental applications in the field, and their associated models offer the practitioner considerable flexibility in terms of specification and estimation.

We would like to thank Rolf Färe and Shawna Grosskopf, as well as our reviewer. This work has greatly benefited from their comments.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 339.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 899.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free ship** worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

References

  1. Aburto-Oropeza O, Ezcurra E, Danemann G, Valdez V, Murray J, Sala E (2008) Mangroves in the Gulf of California increase fishery yields. Proc Natl Acad Sci 105:10456–10459

    Article  Google Scholar 

  2. Agee MD, Atkinson SE, Crocker TD, Williams JW (2014) Non-separable pollution control: implications for a CO2 emissions cap and trade system. Resour Energy Econ 36:64–82

    Article  Google Scholar 

  3. Albrizio S, Kozluk T, Zipperer V (2017) Environmental policies and productivity growth: evidence across industries and firms. J Environ Econ Manag 81:209–226

    Article  Google Scholar 

  4. Ambec S, Cohen MA, Elgie S, Lanoie P (2013) The Porter hypothesis at 20: can environmental regulation enhance innovation and competitiveness? Rev Environ Econ Policy 7:2–22

    Article  Google Scholar 

  5. Arjomandi A, Dakpo KH, Seufert JH (2018) Have Asian airlines caught up with European Airlines? A by-production efficiency analysis. In: Transportation Research Part A: Policy and Practice, vol 116(C). Elsevier, pp 389–403.

    Google Scholar 

  6. Azad MAS, Ancev T (2014) Measuring environmental efficiency of agricultural water use: a Luenberger environmental indicator. J Environ Manag 145:314–320

    Article  Google Scholar 

  7. Azad MAS, Ancev T, Hernandez-Sancho F (2015) Efficient water use for sustainable irrigation industry. Water Resour Manag 29(5):1683–1696

    Article  Google Scholar 

  8. Ayers RU, Kneese AV (1969) Production, consumption, and externalities. Am Econ Rev 59:282–297

    Google Scholar 

  9. Barbier EB (2007) Valuing ecosystem services as productive inputs. Econ Policy 22: 177–229

    Article  Google Scholar 

  10. Barbier EB, Strand I (1998) Valuing mangrove-fishery linkages: a case study of Campeche, Mexico. Environ Resour Econ 12:151–166

    Article  Google Scholar 

  11. Bard J (1998) Practical bilevel optimization: algorithms and applications. Kluwer, The Netherlands

    Book  Google Scholar 

  12. Barnhart B, Bostian M, Whittaker G, Grosskopf S, Färe R (2016) Prioritizing conservation for the reduction of Gulf Hypoxia using an environmental performance index. Ecol Indic 66: 235–241

    Article  Google Scholar 

  13. Baumol WJ, Oates W (1988) The theory of environmental policy. Cambridge University Press, Cambridge

    Book  Google Scholar 

  14. Berman E, Bui LTM (2001) Environmental regulation and productivity: evidence from oil refineries. Rev Econ Stat 83:498–510

    Article  Google Scholar 

  15. Bi GB, Shao YY, Song W, Yang F, Luo Y (2018) A performance evaluation of China’s coal-fired power generation with pollutant mitigation options. J Clean Prod 171:867–876

    Article  Google Scholar 

  16. Bostian M, Herlihy AT (2014) Valuing tradeoffs between agricultural production and wetland condition in the U.S. Mid-Atlantic region. Ecol Econ 105:284–291

    Article  Google Scholar 

  17. Bostian M, Färe R, Grosskopf S, Lundgren T (2016) Environmental investment and firm performance: a network approach. Energy Econ 57:243–255

    Article  Google Scholar 

  18. Bostian M, Färe R, Grosskopf S, Lundgren T (2018) Network representations of pollution-generating technologies. Int Rev Environ Resour Econ 11(3):193–231

    Article  Google Scholar 

  19. Bostian M, Färe R, Grosskopf S, Lundgren T (2018) Prevention or cure? Abatement efficiency in a network technology. CERE working paper, UmeåUniversity

    Google Scholar 

  20. Bostian MB, Whittaker G, Barnhart B, Färe R, Grosskopf S (2015) Valuing water quality tradeoffs at different spatial scales: an integrated approach using bilevel optimization. Water Resour Econ 11:1–12

    Article  Google Scholar 

  21. Brännlund R, Lundgren T (2009) Environmental policy without costs? A review of the Porter hypothesis. Int Rev Environ Resour Econ 3:75–117

    Article  Google Scholar 

  22. Brännlund R, Lundgren T (2010) Environmental policy and profitability: evidence from Swedish industry. Environ Econ Policy Stud 12:59–78

    Article  Google Scholar 

  23. Carlson C, Burtraw D, Cropper M, Palmer K (2000) Sulfur dioxide control by electric utilities: what are the gains from trade? J Polit Econ 108:1292–1326

    Article  Google Scholar 

  24. Caves DW, Christensen LR, Diewert WE (1982) The economic theory of index numbers and the measurement of input, output, and productivity. Econometrica 50(6):1393–1414

    Article  Google Scholar 

  25. Chambers R, Chung YH, Färe R (1996) Benefit and distance functions. J Econ Theory 70(2):407–419

    Article  Google Scholar 

  26. Chambers RG, Serra T, Oude Lansink A (2014) On the pricing of undesirable state-contingent outputs. Eur Rev Agric Econ 41:485–509

    Article  Google Scholar 

  27. Chambers RG, Serra T (2018) The social dimension of firm performance: a data envelopment approach. Empir Econ 54:189–206

    Article  Google Scholar 

  28. Cheng SX, Liu W, Lu K (2018) Economic growth effect and optimal carbon emissions under China’s carbon emissions reduction policy: a time substitution DEA approach. Sustainability 10(5):article number 1543

    Google Scholar 

  29. Chung Y, Färe R, Grosskopf S (1997) Productivity and undesirable outputs. J Environ Manag 51(3):229–240

    Article  Google Scholar 

  30. Coelli T, Lauwers L, Van Huylenbroeck G (2007) Environmental efficiency measurement and the materials balance condition. J Prod Anal 28:3–12

    Article  Google Scholar 

  31. Considine TJ, Larson DF (2006) The environment as a factor of production. J Environ Econ Manag 52:645–662

    Article  Google Scholar 

  32. Considine TJ, Larson DF (2012) Short term electric production technology switching under carbon cap and trade. Energies 5:4165–4185

    Article  Google Scholar 

  33. Cropper M, Oates W (1992) Environmental economics: a survey. J Econ Lit 30:675–740

    Google Scholar 

  34. Dakpo KH, Jeanneaux P, Latruffe L (2016) Modeling pollution-generating technologies in performance benchmarking: recent developments, limits and future prospects in the nonparametric framework. Eur J Operational Res 250(2):347–359

    Article  Google Scholar 

  35. Dakpo KH, Jeanneaux P, Latruffe L (2017) Greenhouse gas emissions and efficiency in French sheep meat farming: a non-parametric framework of pollution-adjusted technologies. Eur Rev Agric Econ 44(1):33–65

    Article  Google Scholar 

  36. Dakpo KH, Lansink AO (2019) Dynamic pollution-adjusted inefficiency under the by-production of bad outputs. Eur J Oper Res 276(1):202–211

    Article  Google Scholar 

  37. Dam L, Lundgren T, Scholtens B (2019) Environmental responsibility – theoretical perspective. In: McWilliams A, Rupp DE, Siegel DS, Stahl GK, Waldman DA (eds) Oxford handbook of corporate social responsibility. Oxford University Press, Oxford

    Google Scholar 

  38. Dechezleprêtre A, Sato M (2017) The impacts of environmental regulations on competitiveness. Rev Environ Econ Policy 11:183–206

    Article  Google Scholar 

  39. Dechezleprêtre A, Koźluk T, Kruse T, Nachtigall D, de Serres A (2019) Do environmental and economic performance go together? A review of micro-level empirical evidence from the past decade or so. Int Rev Environ Resour Econ 13:1–118

    Article  Google Scholar 

  40. Duman YS, Kasman A (2018) Environmental technical efficiency in EU member and candidate countries: a parametric hyperbolic distance function approach. Energy 147: 297–307

    Article  Google Scholar 

  41. Färe R, Grosskopf S, Lovell CAK, Pasurka C (1989) Multilateral productivity comparisons when some outputs are undesirable: a nonparametric approach. Rev Econ Stat 71(1): 90–98

    Article  Google Scholar 

  42. Färe R, Grosskopf S, Noh DW, Weber W (2005) Characteristics of a polluting technology: theory and practice. J Econ 126:469–492

    Article  Google Scholar 

  43. Färe R, Grosskopf S, Norris M, Zhang Z (1994) Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries. American Economic Review 84(1): 66–83

    Google Scholar 

  44. Färe R, Grosskopf S, Pasurka C (2010) Toxic releases: an environmental performance index for coal-fired power plants. Energy Econ 32(1):158–165

    Article  Google Scholar 

  45. Färe R, Grosskopf S, Pasurka CA (2013) Joint production of good and bad outputs with a network application. In: Shogren JF (ed) Encyclopedia of energy, natural resource, and environmental economics, vol 2. Elsevier, Amsterdam, pp 109–118

    Chapter  Google Scholar 

  46. Färe R, Grosskopf S (2004) New directions: efficiency and productivity. Kluwer Academic Publishers, Boston

    Google Scholar 

  47. Färe R, Grosskopf S, Hernandez-Sancho F (2004) Environmental performance: an index number approach. Resour Energy Econ 26(4):343–352

    Article  Google Scholar 

  48. Färe R, Grosskopf S, Margaritis D, Weber WL (2012) Technological change and timing reductions in greenhouse gas emissions. J Prod Anal 37:205–216

    Article  Google Scholar 

  49. Färe R, Grosskopf S, Weber WL (2006) Shadow prices and pollution costs in US agriculture. Ecol Econ 56(1):89–103

    Article  Google Scholar 

  50. Färe R, Grosskopf S, Lundgren T, Marklund P-O, Wenchao Z (2016) The impact of climate policy on environmental and economic performance: evidence from Sweden. Routledge Focus/Taylor Francis Group: London

    Book  Google Scholar 

  51. Färe R, Grosskopf S, Margaritis D (2019) Pricing non-marketed goods using distance functions. World Scientific Publishing (NOW), Singapore

    Book  Google Scholar 

  52. Fare R and Primont D (1995) Multi-Output Production and Duality: Theory and Applications. Kluwer Academic Publishers, Netherlands

    Book  Google Scholar 

  53. Førsund F (2009) Good modeling of bad outputs: pollution and multiple-output production. Int Rev Environ Resour Econ 3:1–38

    Article  Google Scholar 

  54. Førsund F (2018) Multi-equation modeling of desirable and undesirable outputs satisfying the materials balance. Empir Econ 54(1):67–99

    Article  Google Scholar 

  55. Forsund F (2017) Pollution Meets Efficiency: Multi-equation modelling of generation of pollution and related efficiency measures* Finn Førsund No 09/2017, Memorandum from Oslo University, Department of Economics

    Google Scholar 

  56. Hampf B (2014) Separating environmental efficiency into production and abatement efficiency – a nonparametric model with application to U.S. power plants. J Prod Anal 41(3):457–473

    Article  Google Scholar 

  57. Hoagland P, Kite-Powell HL, ** D, Solow AR (2013) Supply-side approaches to the economic valuation of coastal and marine habitat in the Red Sea. J King Saud Univ Sci 25:217–228

    Article  Google Scholar 

  58. Jaffe AB, Peterson SR, Portney PR, Stavins RN (1995) Environmental regulation and the competitiveness of US manufacturing: what does the evidence tell us? J Econ Lit 33: 132–163

    Google Scholar 

  59. Jaffe AB, Palmer K (1997) Environmental regulation and innovation: a panel data study. Rev Econ Stat 79:610–619

    Article  Google Scholar 

  60. Just RE, Hueth DL, Schmitz A (2004) The welfare economics of public policy: a practical approach to project and policy evaluation. Edward Elgar Publishing, Cheltenham

    Google Scholar 

  61. Kahn JR, Kemp WM (1985) Economic losses associated with the degradation of an ecosystem: the case of submerged aquatic vegetation in Chesapeake Bay. J Environ Econ Manag 12: 246–263

    Article  Google Scholar 

  62. Klemick H (2011) Shifting cultivation, forest fallow, and externalities in ecosystem services: evidence from the Eastern Amazon. J Environ Econ Manag 61:95–106

    Article  Google Scholar 

  63. Kortelainen M (2008) Dynamic environmental performance analysis: a Malmquist index approach. Ecol Econ 64(4):701–715

    Article  Google Scholar 

  64. Kumar S (2006) Environmentally sensitive productivity growth: a global analysis using Malmquist-Luenberger index. Ecol Econ 56(2):280–293

    Article  Google Scholar 

  65. Kumar S, Managi S (2011) Non-separability and substitutability among water pollutants: evidence from India. Environ Dev Econ 16:709–733

    Article  Google Scholar 

  66. Kumbhakar SC, Tsionas EG (2016) The good, the bad and the technology: endogeneity in environmental production models. J Econ 190(2):315–327

    Article  Google Scholar 

  67. Lanoie P, Laurent-Lucchetti J, Johnstone N, Ambec S (2011) Environmental policy, innovation and performance: new insights on the Porter hypothesis. J Econ Manag Strateg 20:803–842

    Article  Google Scholar 

  68. Lozano S (2015) A joint-inputs Network DEA approach to production and pollution-generating technologies. Expert Syst Appl 42(21):7960–7968

    Article  Google Scholar 

  69. Lozano S (2017) Technical and environmental efficiency of a two-stage production and abatement system. Ann Oper Res 255(1–2):199–219

    Article  Google Scholar 

  70. Luenberger D (1995) Microeconomic theory. McGraw-Hill College, Singapore

    Google Scholar 

  71. Lundgren T, Marklund, P-O, Samakovlis E, Wenchao Z (2015) Carbon prices and incentives for technological development. J Environ Manag 150:393–403

    Article  Google Scholar 

  72. Lundgren T, Wenchao Z (2017) Firm performance and the role of environmental management. J Environ Manag 203:330–341

    Article  Google Scholar 

  73. Malikov E, Kumbhakar SC, Tsionas EG (2015) Bayesian approach to disentangling technical and environmental productivity. Econometrics 3(2):443–465

    Article  Google Scholar 

  74. Mamardashvili P, Emvalomatis G, Jan P (2016) Environmental performance and shadow value of polluting on Swiss dairy farms. J Agric Resour Econ 41(2):225–246

    Google Scholar 

  75. McArthur LC, Boland JW (2006) The economic contribution of seagrass to secondary production in South Australia. Ecol Model 196:163–172

    Article  Google Scholar 

  76. McConnell KE, Bockstael NE (2005) Valuing the environment as a factor of production. In: Mäler K-G, Vincent JR (eds) Handbook of environmental economics, ch. 14, vol 2. Elsevier, Amsterdam

    Google Scholar 

  77. McConnell KE, Strand IE (1989) Benefit from commercial fisheries when demand and supply depend on water quality. J Environ Econ Manag 17:284–292

    Article  Google Scholar 

  78. Mekaroonreung M, Johnson AL (2010) Estimating the efficiency of American petroleum refineries under varying assumptions of the disposability of bad outputs. Int J Energy Sector Manag 4(3):356–398

    Article  Google Scholar 

  79. Murty S, Russell RR, Levkoff SB (2012) On modeling pollution-generating technologies. J Environ Econ Manag 64:117–135

    Article  Google Scholar 

  80. Murty S, Russell RR (2018) Modeling emission-generating technologies: reconciliation of axiomatic and by-production approaches. Empir Econ 54(1):7–30

    Article  Google Scholar 

  81. Oh DH (2010) A global Malmquist-Luenberger productivity index. J Prod Anal 34(3): 183–197

    Article  Google Scholar 

  82. Peña CR, Serrano ALM, de Britto PAP, Franco VR, Guarnieri P, Thomé KM (2018) Environmental preservation costs and eco-efficiency in Amazonian agriculture: application of hyperbolic distance functions. J Clean Prod 197(1):699–707

    Article  Google Scholar 

  83. Picazo-Tadeo AJ, Reig-Martinez E, Hernandez-Sancho F (2005) Directional distance functions and environmental regulation. Resour Energy Econ 27(2):131–142

    Article  Google Scholar 

  84. Pindyck R, Rotemberg JJ (1983) Dynamic factor demands and the effects of energy price shocks. Am Econ Rev 73:1066–1079

    Google Scholar 

  85. Piot-Le Petit I, Le Moing M (2007) Productivity and environmental regulation: the effect of the nitrates directive in the French pig sector. Environ Resour Econ 38(4):433–446

    Article  Google Scholar 

  86. Porter M (1991) America’s green strategy. Sci Am 264:168

    Article  Google Scholar 

  87. Porter M, van der Linde C (1995) Toward a new conception of the environment competitiveness relationship. J Econ Perspect 9:97–118

    Article  Google Scholar 

  88. Ray SC, Mukherjee K, Venkatesh A (2018) Nonparametric measures of efficiency in the presence of undesirable outputs: a by-production approach. Empir Econ 54(1):31–65

    Article  Google Scholar 

  89. Rødseth K (2017) Axioms of a polluting technology: a materials balance approach. Environ Resour Econ 67(1):1–22

    Article  Google Scholar 

  90. Serra T, Chambers R, Lansink A (2016) Measuring technical and environmental efficiency in a state-contingent technology. Eur J Oper Res 236(2):706–717

    Article  Google Scholar 

  91. Shadbegian RJ, Gray WB (2005) Pollution abatement expenditures and plant-level productivity: a production function approach. Ecol Econ 54:196–208

    Article  Google Scholar 

  92. Shephard RW (1970) Theory of cost and production functions. Princeton University Press, Princeton

    Google Scholar 

  93. Silva FD, Perrin RK, Fulginiti LE (2019) The opportunity cost of preserving the Brazilian Amazon forest. Agric Econ 50(2):219–227

    Article  Google Scholar 

  94. Van den Bergh JM (1999) Materials, capital, direct/indirect substitution, and mass balance production functions. Land Econ 75:547–561

    Article  Google Scholar 

  95. Weber WL, Domazlicky B (2001) Productivity growth and pollution in state manufacturing. Rev Econ Stat 83(1):195–199

    Article  Google Scholar 

  96. Wei Y, Li Y, Wu MY, Li YB (2019) The decomposition of total-factor CO2 emission efficiency of 97 contracting countries in Paris Agreement. Energy Econ 78: 365–378

    Article  Google Scholar 

  97. Whittaker G, Färe R, Grosskopf S, Barnhart B, Bostian MB, Mueller-Warrant G, Griffith S (2017) Spatial targeting of agri-environmental policy using bilevel evolutionary optimization. OMEGA, Int J Manag Sci 66, Part A:15–27

    Google Scholar 

  98. Yang F, Yang M, Nie H (2013) Productivity trends of Chinese regions: a perspective from energy saving and environmental regulations. Appl Energy 110:82–89

    Article  Google Scholar 

  99. Yao X, Guo CW, Shao S, Jiang ZJ (2016) Total-factor CO2 emission performance of China’s provincial industrial sector: a meta-frontier non-radial Malmquist index approach. Appl Energy 184:1142–1153

    Article  Google Scholar 

  100. Zhang N, Yongrok C (2013) Total-factor carbon emission performance of fossil fuel power plants in China: a metafrontier non-radial Malmquist index analysis. Energy Econ 40: 549–559

    Article  Google Scholar 

  101. Zhang N, Yongrok C (2014) A note on the evolution of directional distance function and its development in energy and environmental studies 1997–2013. Renew Sustain Energy Rev 33:50–59

    Article  Google Scholar 

  102. Zhou P, Ang PW (2008) Decomposition of aggregate CO2 emissions: a production-theoretical approach. Energy Econ 30(3):1054–1067

    Article  Google Scholar 

  103. Zhou P, Sun ZR, Zhou DQ (2014) Optimal path for controlling CO2 emissions in China: a perspective of efficiency analysis. Energy Econ 45:99–110

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Moriah Bostian .

Editor information

Editors and Affiliations

Rights and permissions

Reprints and permissions

Copyright information

© 2022 Springer Nature Singapore Pte Ltd.

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Bostian, M., Lundgren, T. (2022). Production and the Environment. In: Ray, S.C., Chambers, R.G., Kumbhakar, S.C. (eds) Handbook of Production Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-3455-8_38

Download citation

Publish with us

Policies and ethics

Navigation