Abstract
Abstract We use a quadratic directional output distance function to measure the technical efficiency of 209 electric utilities that produce electricity and a polluting byproduct, SO 2 before (1993) and after (1997) implementation of Phase I regulations of the acid rain program. We also estimate the shadow price of SO 2 and the output elasticity of substitution between electricity and SO 2 and find that electric utilities can reduce emissions by 4000–6000 tons by reducing inefficiency, the shadow price of SO 2 increases from 1993 to 1997, and that the elasticity of substitution indicates that the ability to trade reductions in electricity production for reductions in SO 2 emissions became more difficult between 1993 and 1997.
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