Evaluating the Effect of Cost of Environmental Pollution on Efficiency (Case study: China's economic zones)

The purpose of this study is to evaluate the environmental impacts on the value of efficiency. Industries and companies making environmental pollution, bring costs to the community, which in the most cases are not taken into account for measuring efficiency. This study has attempted to find a proper model for evaluating efficiency using the two-stage data envelopment analysis, considering the costs of environmental pollution. Cost loss resulted from applying environmental constraints on undesirable outputs, are also discussed and calculated.

An analytical-descriptive method is utilized in this study. Two-stage data envelopment analysis has been used here to measure efficiency. At first, environmental constraints have been made up with respect to the problem and then added to the model. The proposed mathematical models are solved using the GAMS software and the values of efficiency are obtained.

Results show that the model with environmental regulations has a lower efficiency value compared to the model without environmental regulation, indicating that applying environmental regulations on undesirable outputs, leads to losing some of desirable outputs and consequently some cost. The study involves 20 economic zones of China whose efficiency and cost loss are calculated.

The results show that in Guizhou and Guangdong regions, the efficiency is the same in both cases, indicating that these areas are on the edge of efficiency. The cost loss in these areas is zero. However, in areas such as Shaanxi and Liaoning, the difference is greater, indicating that for a long period of time, the economic development of these areas has been dependent on constant consumption of resources, which has caused reduced environmental quality.