A critique of non-parametric efficiency analysis in energy economics studies

• Main Author: Chen, Chien-Ming
• Other Authors: Nanyang Business School
• Format: Article
• Language: English
• Published: 2013
• Online Access: https://hdl.handle.net/10356/106788; http://hdl.handle.net/10220/16651
• Institution: Nanyang Technological University

The paper reexamines non-additive environmental efficiency models with weakly-disposable undesirable outputs appeared in the literature of energy economics. These efficiency models are used in numerous studies published in this journal and other energy-related outlets. Recent studies, however, have found key limitations of the weak-disposability assumption in its application to environmental efficiency analysis. It is found that efficiency scores obtained from non-additive efficiency models can be non-monotonic in pollution quantities under the weak-disposability assumption — which is against common intuition and the principle of environmental economics. In this paper, I present taxonomy of efficiency models found in the energy economics literature and illustrate the above limitations and discuss implications of monotonicity from a practical viewpoint. Finally, I review the formulations for a variable returns-to-scale technology with weakly-disposable undesirable outputs, which has been misused in a number of papers in the energy economics literature. An application to evaluating the energy efficiencies of 23 European Union states is presented to illustrate the problem.