Technical efficiency, shadow price and substitutability of Chinese industrial SO2 emissions: a parametric approach

In China's transition process towards sustainable development, fighting against the rising SO2 emission has become a great and urgent challenge. Based on a parametric quadratic directional distance function, this paper investigates the inefficiency level, shadow price and substitution elasticity of Chinese industrial SO2 emission from 1998 to 2011. The results show a U-shape for the technical inefficiency, indicating an efficiency improvement before 2005 but it getting worse since then, which is that the east area displays a declining trend while the west goes up and the middle follows the national pattern at the east-middle-west region level. As of the shadow price and Morishima elasticity, both the national and regional levels hold an increasing trajectory. The shadow price is continuously increased a lot during the whole period, implying to control additional SO2 emission become more costly. The positive Morishima substitution elasticity suggests there may exist the win-win opportunities for SO2 regulation. Moreover, the large regional disparity highlights the needs to adopt a differentiated regional policy.