Productivity differences across OECD countries in the presence of environmental constraints

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 it 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 or 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.