Economic and environmental efficiency in Europe: evidence from a new stochastic frontier model

Abstract

This study aims to evaluate the resource and environment efficiency problem of European countries. We specify a new stochastic frontier model where Gross Domestic Product (GDP) is considered as the desirable output and Greenhouse Gases (GHG) emissions as the undesirable output. Capital, Labour, Fossil fuels and Renewable Energy consumption are regarded as inputs. The study is divided into two distinct periods, 2000-2004 and 2005-2011, in order to evaluate the difference between efficiency levels before and after the establishment of environmental targets related with the implementation of the Kyoto Protocol in 2005. A maximum entropy approach to assess technical efficiency is discussed.