Non-parametric Directional Distance Function Research Articles

The impact of repayment obligations arising as a by‐product of input use on partial inefficiency: Evidence from Western Australian farm businesses

AbstractFarm businesses often use debt to finance the purchase inputs and meet operational costs. Selected studies have investigated the impact of debt use on farm performance as measured using technical efficiency. However, no prior studies in agriculture have considered treating the debt repayment obligation created as a by‐product of production when benchmarking farm performance. This study employs nonparametric directional distance function models to quantify the impact of debt repayment as a by‐product of input use purchased on credit on farm‐level partial inefficiency using a panel data of 54 mixed enterprise broadacre farms in Western Australia from 2002 to 2011. The study finds that omitting repayment obligations created in the production process in analysis results in underestimating partial inefficiency scores. Farm size, production diversification and rainfall zone are significant drivers of partial inefficiency. The implication of the study's findings is that failure to account for repayment obligations created in the production process may result in erroneous policy suggestions that undermine the efforts of farm businesses to minimise or avoid financial stress.

Measuring ecoefficiency of municipal solid waste management in Apulia to account for governance heterogeneities

This paper adopts a meta-frontier non-parametric directional distance function framework to measure the ecoefficiency of municipal solid waste (MSW) services in 258 municipalities in the Apulia region from 2012 to 2016. Model specification includes the operating cost per quantity of waste as input and the per capita quantities of sorted and unsorted waste as the desirable and undesirable outputs. The heterogeneities due to the different governance systems implemented in the six areas in which the regional territory was partitioned to manage the MSW service were considered. A dynamic distributional analysis of MSW ecoefficiencies was performed, and determinants affecting their measure were investigated. The results show that the average MSW service meta-frontier ecoefficiency decreased from 0.631 to 0.546, while the technology gap ratio value diminished from 0.899 to 0.827. Findings relative to the impact on ecoefficiency of variables measuring either the size or density of MSW services remain inconclusive.

Sustainable development in China? A nonparametric decomposition of economic growth

China has undergone significant deviations from the command economy established in 1949, achieving unprecedented success in sustaining high growth. Consequently, numerous scholars have devoted their attention to studying China's economic development. In this study, we contribute to this literature using a new technique to examine China's economic development. This technique utilizes nonparametric directional distance function in the framework of neoclassical growth theory. It avoids the assumptions imposed on parametric production functions that are often short of practical justifications. Our analysis shows that capital and energy inputs account for 75.7% and 20.8% of China's GDP growth during 1985–2020. These figures characterize a capital-driven growth model that is unlikely to be sustainable by conventional wisdom. However, our empirical evidence, obtained through an interactive-fixed effects model, indicates that it is not unreasonable to say that growth in China is government-led rather than capital-driven; the former could be sustained by desirable reforms under strong national leadership while the latter is not.

The influence of financial and technological structure on eco-efficiency: an application of DDF bootstrapped framework in the Italian polluting industries

In this paper, we estimate environmental corrected efficiency scores for a large sample of Italian firms operating in four different polluting industrial sectors subjected to the same European normative framework. Merging economic and emission data coming from reliable public sources, we measure overall performances through the non-parametric directional distance function and in order to improve the robustness of the results, we perform an extension of the bootstrap proposed for standard efficiency scores. Results are analysed through a truncated regression after testing for the validity of separability condition between input-output space and explanatory variables as well as in light of industrial specificity. Results show that both the financial structure and the technological status of the firms have a significant explanatory power in relation to environmental corrected efficiency scores. Policymakers should carefully consider both aspects as important issues for supporting sustainable practices.

Holistic Impact and Environmental Efficiency of Retrofitting Interventions on Buildings in the Mediterranean Area: A Directional Distance Function Approach

The study focuses on the application of a nonparametric methodology for evaluating the sustainability of retrofitting interventions to be applied on different typologies of buildings and different climate zones of the Mediterranean area. The paper starts from the analysis of data collected through the HAPPEN project, that is a H2020 European project which proposes a holistic approach for a deep and sustainable renovation of the Mediterranean residential Building stock. Even if the European Commission allocated considerable funds for retrofitting interventions, the choice of the optimal solution is not always that easy because several variables have to be considered. The present manuscript proposes a methodology to compare different retrofitting solutions combining Life-Cycle Cost (i.e., LCC) estimations with the nonparametric Directional Distance Function approach (i.e., DDF). In detail, the literature suggests that the DDF can be effectively used for comparing different observations through efficiency scores. The main result of the paper is the definition of a hybrid methodology that, starting from estimates of LCC and applying a DDF technique, represents a simple method for evaluating the best retrofitting intervention. Results are represented by two scores where the former represents a holistic efficiency measure, while the latter shows an environmental efficiency score.

Energy Costs of Reducing Industrial Sulfur Dioxide Emissions in China

With increasing environmental pollution, China has instituted corresponding environmental regulations to address environmental challenges. Estimating the costs of such environmental regulations can help governments to formulate rational environmental policies. This review estimates the costs of environmental regulations based on a novel perspective of energy consumption. Using panel data for Chinese provincial regions in 2006–2015, we developed a non-parametric directional distance function and estimated different optimal energy inputs based on data envelopment analysis under two scenarios, namely, those with and without emission reduction constraints. The gap between the two groups of optimal energy inputs facilitated the estimation of the energy costs associated with reducing SO2 (sulfur dioxide) emissions in China’s industrial sectors. The results suggest that approximately 13.40 tons of standard coal were required to reduce SO2 emissions by 1 ton, highlighting the discrepancy between energy savings and emission reduction. The energy costs of SO2 emission reduction were the highest in West China (18.63), followed by those in Central and Northeast China; meanwhile, those in East China were the lowest (9.91). The large differences between the energy costs of emission reduction in different regions indicated that economically underdeveloped areas have scope for improvement with respect to energy structures and innovation in the green technology field.

Are Sustainable Development Policies Really Feasible? Focused on the Petrochemical Industry in Korea

Korea inaugurated an emission trading scheme (ETS) in 2015 for its ambitious target to reduce 37% greenhouse gas per 2030 business-as-usual level. This study examines the sustainable governance of the Korean petrochemical industry, one of the world’s major emitters of greenhouse gas, with 55 firms participating in ETS. On the basis of the non-radial, non-parametric directional distance function, this study derives three types of efficiencies: greenhouse gas technical efficiency (GTE), pure technical efficiency, and scale efficiency. Using these indices, this study also provides information for benchmarking for the fast followers. The findings of this study reveal the following. First, petrochemical industry exhibits 63.5% ETS performance, on average, showing huge potential improvement. Second, by decomposing GTE value, this study provides information from the perspective of scale to find out the oversupply issues in some petrochemical firms. Lastly, benchmark information for each firm is provided to enhance its efficiency.

The Carbon Emissions Efficiency and Marginal Abatement Cost in Urban of China: Non-Parametric Directional Distance Function Method

This paper estimates the CO2 marginal abatement cost of 286 cities in China based on non-parametric directional distance function method for the period of 2002-2013. We compared the results according to different perspectives, such as the areas, the Gross Domestic Product (GDP) per capita and the environmental and non-environmental cities. The results show that the CO2 marginal abatement cost differs obviously among cities and it’s higher in eastern area than in middle and western area which indicates that the abatement potential is bigger in middle and western area.

Are Emissions Trading Policies Sustainable? A Study of the Petrochemical Industry in Korea

In 2015, Korea inaugurated an emissions trading scheme (ETS). In this regard, many studies have considered the sustainable performance and efficiency of industries that emit carbon; however, few have examined ETS at company level. This paper focuses on companies’ data related to Korean ETS in the petrochemical industry. Based on the non-radial, nonparametric directional distance function (DDF), the paper evaluates the governance factors related to ETS policies and sustainable performance in terms of carbon technical efficiency (CTE), the shadow price of carbon emissions, and Morishima elasticity between the input and undesirable output of carbon emissions. Using a dual model, the paper shows that Korean ETS has huge potential for participating companies to improve CTE. If all companies consider the production possibility frontier, they could potentially improve efficiency by 52.8%. Further, Morishima elasticity shows strong substitutability between capital and energy, implying that green technology investment should bring a higher degree of energy-saving performance. Unfortunately, however, the market price of carbon emissions is far too low compared with its shadow price, suggesting that the Korean government’s price-oriented market intervention has resulted in the ETS producing poor sustainable performance. As the title suggests, ETS of Korea is not sustainable at the current stage, but with more efforts on the transition period, all the developing countries should support the governance factors of the ETS in terms of the more effective green investment with easier access to the green technology.

Financial allocation strategy for the regional pollution abatement cost of reducing sulfur dioxide emissions in the thermal power sector in China

This study explores empirical evidence for two hypotheses through a macro productivity analysis using the nonparametric directional distance function approach applied to the thermal power sector. The first hypothesis is that the marginal abatement cost has significantly declined in recent years mainly due to domestic flue gas desulfurization technology in China, which has become available at a reasonable cost. The second is the existence of a certain budget scale, which, with policy intervention, would have significant outcomes. These hypotheses are successfully addressed through the findings that the marginal abatement cost in 2006 had declined by half since 2003 and that the strategic allocation of 10 billion yuan for SO 2 emissions abatement would result in an additional 550,000 tonnes of SO 2 reductions.

Efficiency and innovation offsets in non-point source pollution control and the role of education

This paper discusses and empirically analyses the implications of efficiency and innovation offsets for the management of non-point source pollution from agriculture. If efficiency improvements and green innovation indeed combine environmental advantages with economic advantages, these offsets would offer a free lunch adjustment to environmental regulations. A theoretical model of the farm is developed where pollution is a joint output of production, where inefficiency in production prevails and environmental innovations are available. We discuss whether education about environmentally friendlier farming practices is effective in such a context. The empirical analysis addresses pesticide use in conventional and genetically modified cotton production in North Carolina, USA. The conceptual model was implemented by means of the non-parametric directional distance function approach in Data Envelopment Analysis (DEA).

Estimation of the shadow prices of pollutants with production/environment inefficiency taken into account: a nonparametric directional distance function approach

This paper deals with the estimation of the shadow prices of pollutants with a nonparametric directional distance function approach, where the inefficiency involved in the production process is taken into account unlike the previous studies. The directional vector, which is critical to the estimation and subject to the criterion for an appropriate efficiency rule proposed here, is calculated by using the annual plans of power plants in terms of production and environment. In the empirical study for Korea’s electric power industry during the period of 1990–1995, we find that the average shadow prices of sulfur oxides (SOx), nitrogen oxides (NOx), and total suspended particulates (TSP) are approximately 10% lower than those calculated under the assumption of full efficiency. The methodology we propose and the findings obtained in the empirical study allow us to undertake better decision-making over a broad range of environmental policy issues.