Scandinavian Working Papers in Economics

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

No 2012:13: Productivity: Should We Include Bads?

Rolf Färe (), Shawna Grosskopf (), Tommy Lundgren (), Per-Olov Marklund () and Wenchao Zhou ()
Additional contact information
Rolf Färe: Dept. of Agriculture and Resource Economics, Postal: Oregon State University, Corvallis,, Oregon, , USA
Shawna Grosskopf: Dept. of Economics and Dept. of Agriculture and Resource Economics, Postal: Oregon State University, , Corvallis, Oregon, , USA
Tommy Lundgren: CERE, Centre for Environmental and Resource Economics, Postal: SLU and Umeå, University, , Umeå, , Sweden
Per-Olov Marklund: CERE, Centre for Environmental and Resource Economics and CERUM, Centre for Regional Science, Postal: Umeå University, , Sweden
Wenchao Zhou: CERUM, Centre for Regional Science, Postal: Umeå University, , Sweden

Abstract: This paper studies the interaction between economic and environmental performance. Applying the directional output distance function approach, the purpose is to compare estimates of Luenberger total factor productivity indicators, including and excluding bad outputs. Specifically, based on unique firm level data from Swedish manufacturing covering the period 1990 to 2008, we explore to what extent excluding bad outputs leads to erroneous productivity measurement. The main conclusion is that bad outputs should not only be included in the estimations, but also reduction in bad outputs should be credited. From this point of view the directional output distance function approach and the Luenberger indicator serves as an appropriate basis of productivity measurement.

Keywords: Swedish manufacturing; Luenberger indicator; emissions; productivity

JEL-codes: D24; Q01; Q53

26 pages, May 31, 2012

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