Environmental regulation and production structure for the Korean iron and steel industry

Abstract

The most important obstacle to studying the structure of production under environmental regulations is the lack of price data for abatement capital. The use of a restricted cost function circumvents the problem of missing prices for some inputs. This paper estimates a restricted cost function for the Korean iron and steel industry based on the quantities of raw material and abatement capital over the period 1982–2001. The Allen elasticities of substitution between abatement capital and other inputs are calculated, and the shadow price of abatement capital is derived.