EFFICIENCY AND SUBSTITUTION IN POLLUTION-ABATEMENT

This paper examines the relative contributions of three factors to economic efficiency and pollution abatement. The first is price efficiency, achieved through the removal of unnecessary subsidies-surprisingly widespread-for polluting activities; the second, managerial ('X') efficiency; and the third, substitution towards low-polluting practices. The first two so-called 'win-win' options often lead to large gains in economic efficiency but to secondary effects on pollution abatement, and the third to large effects on pollution abatement and gains in economic efficiency, via the reduction of external costs. The case of electricity supply in developing countries is studied using a simulation model.