Economic and environmental efficiencies of greenhouse gases’ emissions under institutional influence

Abstract

Countries face the challenge of mitigating GHG emissions while, at least, not hampering economic outcomes, which generates conflict within and between them. Managing conflict accrues underlying costs that bolsters inefficiency in emissions reduction (environmental efficiency – EE) and in economic output generation (technical efficiency – TE). Although institutions play a role by alleviating these costs, its influence are not only difficult to measure, but also different institutions can influence distinctively EE and TE. This study covered the assessment of the role of distinct institutions in GHG mitigation efficiency, and in GDP efficiency based on the concept of transaction costs, which enabled the combination of new institutional economics with the empirical assessment of inefficiency in production. We employed Stochastic Frontier Analysis with a by-production approach on a panel data, using a sample of 116 countries from 1993 to 2012. Results indicated that indeed not any institution improved EE or TE. Furthermore, for countries with very-high institutional quality, their EE and TE were close to the efficient frontier, but also presented a higher elasticity of non-renewable energy input in EE frontier. Conversely, there is a larger room for improvement in efficiency through enhancements in institutional quality for countries with lower institutional quality.