Estimating the shadow prices of SO2 and NOx for U.S. coal power plants: A convex nonparametric least squares approach Academic Article uri icon

abstract

  • Weak disposability between outputs and pollutants, defined as a simultaneous proportional reduction of both outputs and pollutants, assumes that pollutants are byproducts of the output generation process and that a firm can "freely dispose" of both by scaling down production levels, leaving some inputs idle. Based on the production axioms of monotonicity, convexity and weak disposability, we formulate a convex nonparametric least squares (CNLS) quadratic optimization problem to estimate a frontier production function assuming either a deterministic disturbance term consisting only of inefficiency, or a composite disturbance term composed of both inefficiency and noise. The suggested methodology extends the stochastic semi-nonparametric envelopment of data (StoNED) described in Kuosmanen and Kortelainen (2011). Applying the method to estimate the shadow prices of SO 2 and NO x generated by U.S. coal power plants, we conclude that the weak disposability StoNED method provides more consistent estimates of market prices. © 2012 Elsevier B.V.

published proceedings

  • Energy Economics

author list (cited authors)

  • Mekaroonreung, M., & Johnson, A. L.

citation count

  • 82

complete list of authors

  • Mekaroonreung, Maethee||Johnson, Andrew L

publication date

  • May 2012