Effects on relative efficiency in electric power generation due to environmental controls

Abstract In this paper, we model the effects of environmental controls when these are viewed as restricting disposal of outputs. We specify an unregulated and a regulated multi-output technology satisfying strong (free) disposability of outputs and weak (restricted) disposability of outputs, respectively, By comparing the relative productive efficiency of firms using restricted and unrestricted technologies we derive a measure or index of the effect of environmental regulation. We employ recently developed programming models to calculate this measure of the cost of environmental controls for a sample of steam electric plants in the U.S.