Productivity differences across OECD countries in the presence of environmental constraints

Abstract

The purpose of this paper is to carry out a computational analysis of the tradeoffs between a good output and the CO2 emissions or bad output that is often created as a by-product of the production process. The efficiency of this process is computed through a series of DEA formulations, related to the two outputs. One formulation considers the strategy of minimizing the pollution level produced for the generation of a given good-output level. Another seeks the maximum good-output production for a set bad-output level. A mixed strategy looks for simultaneous increases in the good output and decreases in CO2 emissions. A fourth ignores altogether the presence of the bad output. The empirical analysis illustrates the feasibility of achieving productivity growth and pollution decreases. It also identifies country trends for the 1970–1990 period in the production of good and bad outputs of 14 OECD countries. These trends resemble quite closely the strategies described in the paper.