An iterative approach to the estimation of the abatement costs of harmful emissions
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The ability to quantify tradeoffs involved in the process of reducing harmful emissions is essential to successful policy-making in the environmental planning area. The approach by Färe et al. (J Econom 126: 469–492, 2005) to computing point estimates of the marginal abatement costs (MACs) of reducing pollution by estimating the directional output distance function has been gaining popularity in recent years. The contribution of this study is to compute MACs as slopes of the iterated parametric production possibilities frontier (PPF) estimated on the basis of the set of efficient projections of observable output combinations obtained from the parameters of directional output distance function. Policy makers are thus provided with the general shape of the production possibilities set for a polluting technology rather than with a set of point estimates of the MACs. We apply our methodology to a balanced panel of seven Korean manufacturing sectors spanning the period between 1999 and 2009, obtaining theoretically consistent concave PPFs based on a large set of directional output distance vectors. Finally, we estimate the parameters of a directional output distance function corresponding to the iterated PPF.
KeywordsCO2 emissions Marginal abatement cost Directional output distance function
JEL codesD24 Q4 O44 R11
Compliance with ethical standards
Conflict of interest
The authors declare that they have no conflict of interest.
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