Environmental efficiency, energy efficiency and aggregate well-being of Japanese prefectures

Abstract

Abstract Measures of societal welfare should account for the multiple goals that governments face in improving environmental goods, economic goods and social goods such as those tracked by the Organization of Economic Cooperation and Development. To account for these multiple goals this paper constructs a multi-product performance measure using Data Envelopment Analysis. The multi-product technology studied employs a network structure where inputs produce intermediate products and final outputs that consist of desirable goods and undesirable by-products such as greenhouse gas emissions that occur when fossil fuels are used as the energy source. The network technology incorporates a capacity utilization constraint and directly links energy and polluting emissions via a costly disposability assumption. A directional distance function is used to represent the technology and measures a producer's inefficiency. An empirical example finds that producers could reduce energy use and greenhouse gas emissions by 15% via increased technical efficiency and by operating at capacity.