Environmentally Sensitive Productivity Analysis of the Canadian Pulp and Paper Industry, 1959-1994: An Input Distance Function Approach

This study employs a parametric input distance function that incorporates both desirable and undesirable outputs to provide a more complete representation of the production technology from which environmentally sensitive productivity and efficiency measures can be generated. This framework also generates pollution abatement cost estimates that are useful for policy making. An input-based Malmquist index of productivity growth that appropriately credits the producer not only for increases in marketable or desirable outputs but also for the production of improved environmental quality through pollution abatement activities is derived from the input distance function. The method was applied to time series data from the Canadian pulp and paper industry. Our shadow price estimates indicate that the marginal cost to producers of pollution control has been rising. The main conclusion of this study is that productivity improvement, from the social viewpoint, has been stronger than conventional measures would suggest.