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Measuring the cost of environmentally sustainable industrial development in India: a distance function approach

Published online by Cambridge University Press:  16 July 2002

M.N. Murty  and
Surender Kumar
M.N. Murty
Affiliation:
Institute of Economic Growth, Delhi University Enclave, Delhi-110007, Email: mnm@ieg.ernet.in and mnmurty@hotmail.com
Surender Kumar
Affiliation:
Institute of Economic Growth, Delhi University Enclave, Delhi-110007, India. Tel: 91–11–7667101, 7667365, 7667068. Fax: 91–11–7667410.
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Abstract

This paper attempts to estimate the maintenance cost of water pollution abatement measures to the Indian industry using the methodology of distance function in the theory of production. The distance function is estimated using both programming and stochastic frontier models for a sample of water polluting industries in India. The firm-specific shadow prices for pollutants, measures of efficiency, and scale economies are estimated. Estimates show that on average the cost to the Indian industry for reducing one ton of BOD and COD are respectively, Rs 0.246 and 0.077 million. Large differences in the estimates of firm-specific shadow prices of pollutants reflect the use of inefficient water pollution abatement technologies. The relationships between firm-specific shadow prices or marginal costs of abatement of BOD and COD and the index of compliance (ratio of effluent load to sale value) and the pollution load reductions obtained confirm the earlier empirical results of studies on water pollution abatement in Indian industries. The earlier studies have found increasing marginal costs with respect to reductions in pollution concentrations and decreasing marginal cost with respect to the pollution loads reduced by the firms.

Type
Theory and Applications
Information
Environment and Development Economics , Volume 7 , Issue 3 , July 2002 , pp. 467 - 486
Copyright
© 2002 Cambridge University Press

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Footnotes

This paper forms part of the work of the ongoing research project on ‘Accounting and Valuation of Industrial Pollution: Environmentally Corrected GDP for India’. We are grateful to two anonymous referees and the editor of this journal for very useful comments on an earlier draft of this paper. We express our thanks to the participants in seminars at the Institute of Economic Growth, Delhi, the Institute for Social and Economic Change, Bangalore, and the Second International Conference on Environment and Development, Stockholm, 2000 for comments.