Scandinavian Working Papers in Economics
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CERE - the Center for Environmental and Resource Economics CERE Working Papers, CERE - the Center for Environmental and Resource Economics

No 2013:2:
Which Bad is Worst? An Application of Leif Johansen’s Capacity Model

Rolf Färe (), Shawna Grosskopf (), Tommy Lundgren (), Per-Olov Marklund () and Wenchao Zhou ()

Abstract: The production of desirable (good) outputs is frequently accompanied by unintended production of undesirable (bad) outputs. If two or more of these undesirable outputs are produced as byproducts, one may ask: ‘Which bad is worst?’ By worst we mean which bad inhibits the production of desirable outputs the most if it is regulated. We develop a model based on Leif Johansen’s capacity framework by estimating the capacity limiting effect of the bads. Our model resembles what is referred to as the von Liebig Law of the Minimum, familiar from the agricultural economics literature. To illustrate our model we apply our approach to a firm level data set from the Swedish paper and pulp industry.

Keywords: von Liebig Law of the Minimum; DEA; emissions; regulation; (follow links to similar papers)

JEL-Codes: D24; Q01; Q50; (follow links to similar papers)

21 pages, March 20, 2013

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