Derivation of Shadow Prices for Undesirable Outputs: A Distance Function Approach

TLDR

Abstract

Many production activities generate undesirable byproducts in conjunction with the desirable outputs they produce. Russell W. Pittman (1983) showed how to adjust productivity calculations, and Rolf Fare et al. (1989) showed how to adjust efficiency measures, in the presence of undesirable outputs. Here the authors show how to estimate output distance functions as frontiers in order to generate shadow values of the undesirable outputs that are required to make both types of adjustment. An empirical application is provided. Knox Lovell, and Suthathip Yaisawarng. Copyright 1993 by MIT Press.