Weak Disposability in Nonparametric Production Analysis with Undesirable Outputs

Weak disposability of outputs means that firms can abate harmful emissions by decreasing the activity level. Modeling weak disposability in nonparametric production analysis has caused some confusion. This paper identifies a dilemma in these approaches: conventional formulations implicitly and unintentionally assume all firms apply uniform abatement factors. However, it is usually cost efficient to abate emissions in those firms where the marginal abatement costs are lowest. This paper presents a simple formulation of weak disposability that allows for non-uniform abatement factors and preserves the linear structure of the model.