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Incorporating the non-separability concept of production, pollution and abatement in sector models

Incorporating the non-separability concept of production, pollution and abatement in sector models. Jef Van Meensel Centre for Agricultural Economics. Introduction. Incorporating environmental effects in sector modelling: Extend private economic view Basics for internalization experiments

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Incorporating the non-separability concept of production, pollution and abatement in sector models

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  1. Incorporating the non-separability concept of production, pollution and abatement in sector models Jef Van Meensel Centre for Agricultural Economics

  2. Introduction • Incorporating environmental effects in sector modelling: • Extend private economic view • Basics for internalization experiments • Contents: • Evolution of theoretical thinking • Translation of theoretical concepts to sector modelling

  3. Conventional theory • Production and emission are separable • Strict joint production (fixed proportions) Production X → Y Emission Y→ B TB Y (c) (b) (a) B

  4. New theoretical paradigm • Production & emission: to be treated as non-separable • (Y, B) = f(X) (joint inputs) • (Y, B) =f(X1,…,Xn) (input substitution) • Generalized joint production • Proportion of good and bad outputs to be varied • Rearrangement of productive inputs to counter externalities • Three consecutive steps to environmentally sound production (Hill et al, 1999) • Efficiency improvements • Input substitution • Output reduction Use of new technologies

  5. Graphical representation Y MAC Efficiency improvement Input substitution New technologies Reduction Y New technologies Input substitution at private cost Proportional reduction Y and B B B reduction Weakly disposable Strongly disposable Input substitution Efficiency improvement

  6. Translation to sector modelling • Conventional theory • B = f(aY) • New theoretical paradigm • Production function Y = g(X) • Objective function Z = p[g(X)] • Externality B = h[g(X)]

  7. Conclusion • Two challenges: • Theoretical: clear linkage between concepts of joint production, disposability and separability • Practical: include different steps to environmentally sound production in sector model

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