New Horizons in Environmental Economics series
INTRODUCTION To protect public health and environmental quality, the Chinese government has undertaken a series of actions. Several laws, regulations, and standards have been promulgated (Sinkule and Ortolano, 1995; Edmonds, 2004). Whether pollution abatement technologies are used most efficiently is crucial in the analysis of environmental management because it influences, at least in part, the cost of alternative production and pollution abatement technologies. An extensive theoretical literature examines the role of environmental policy in encouraging productivity growth (see Jaffe et al., 2003). On the one hand, abatement pressures may stimulate innovative responses that reduce the actual compliance cost below the original estimates. On the other, firms might be reluctant to innovate if they believe that regulators will respond by ratcheting up standards even more tightly. In addition to the changes in environmental regulations and technology, management levels also affect environmental productivity. Thus, whether environmental productivity increases over time is an empirical question. The focus of this chapter is to measure technological change both for market and nonmarket (that is, environmental) outputs. One major problem of measuring the productivity of environmental pollutants is that such pollutants typically are not marketed, and therefore are unpriced. In the market economy, the price mechanism (and property rights) provides incentives that guide the allocation of resources towards their highest-valued uses. However, nonmarket resources frequently have ill-defined property rights, and they lack a price mechanism to guide their allocation. Consequently, we do not have the information to determine whether the environment is being utilized efficiently (that...
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