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Incorporating the non-separability concept of production, pollution and abatement in sector models. Jef Van Meensel Centre for Agricultural Economics. Introduction. Incorporating environmental effects in sector modelling: Extend private economic view Basics for internalization experiments

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incorporating the non separability concept of production pollution and abatement in sector models

Incorporating the non-separability concept of production, pollution and abatement in sector models

Jef Van Meensel

Centre for Agricultural Economics

introduction
Introduction
  • Incorporating environmental effects in sector modelling:
    • Extend private economic view
    • Basics for internalization experiments
  • Contents:
    • Evolution of theoretical thinking
    • Translation of theoretical concepts to sector modelling
conventional theory
Conventional theory
  • Production and emission are separable
  • Strict joint production (fixed proportions)

Production

X → Y

Emission

Y→ B

TB

Y

(c)

(b)

(a)

B

new theoretical paradigm
New theoretical paradigm
  • Production & emission: to be treated as non-separable
    • (Y, B) = f(X) (joint inputs)
    • (Y, B) =f(X1,…,Xn) (input substitution)
  • Generalized joint production
    • Proportion of good and bad outputs to be varied
    • Rearrangement of productive inputs to counter externalities
  • Three consecutive steps to environmentally sound production (Hill et al, 1999)
    • Efficiency improvements
    • Input substitution
    • Output reduction

Use of new technologies

graphical representation
Graphical representation

Y

MAC

Efficiency improvement

Input substitution

New technologies

Reduction Y

New technologies

Input substitution at private cost

Proportional reduction Y and B

B

B reduction

Weakly disposable

Strongly disposable

Input substitution

Efficiency improvement

translation to sector modelling
Translation to sector modelling
  • Conventional theory
    • B = f(aY)
  • New theoretical paradigm
    • Production function Y = g(X)
    • Objective function Z = p[g(X)]
    • Externality B = h[g(X)]
conclusion
Conclusion
  • Two challenges:
    • Theoretical: clear linkage between concepts of joint production, disposability and separability
    • Practical: include different steps to environmentally sound production in sector model