An econometric model of production with endogenous improvement in energy efficiency, 1970-1995

Conrad, Klaus

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URN: urn:nbn:de:bsz:180-madoc-10474
Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: Discussion Papers / Institut für Volkswirtschaftslehre und Statistik
Volume: 563
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Institut für Volkswirtschaftslehre und Statistik > Discussion Papers
Subject: 330 Economics
Subject headings (SWD): Deutschland , Forschung und Entwicklung , Energie , Chemische Industrie
Abstract: The purpose of this paper is to introduce a modification of a standard four input production process where energy is used in an inefficient way due to partly unnecessary waste of energy. In this production process, R&D investment is an additional input in order to improve energy efficiency. It closes the gap between energy purchased and energy used effectively. The more is invested, the less is the waste of energy. With the cost and benefit of R&D investment incorporated in our model of the firm, we analyze the impact of an energy tax on R&D effort, on output and on the waste of energy. The model is implemented empirically by choosing a translog cost function and a set of first-order conditions, using data for the German chemical industry, 1970-1995. In a simulation study based on higher energy prices we found outsourcing as the consequent reaction of the firm - more material is used and less of energy, labor, and capital, given the unchanged output level. There is no indication of a double dividend in terms of environmental improvement as well as higher demand for labor on the industry level calling for a computable general equilibrium approach in order to answer this open question.
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