Title: Shadow price estimation of firm's pollutants: FOA and SA approaches

Authors: Yulin Liu; Zunbao Yu

Addresses: College of Public Administration, Chongqing University, Shazheng Road #174, Shapingba District, Chongqing Municipality, China ' College of Economics and Business Administration, Chongqing University, Shazheng Road #174, Shapingba District, Chongqing Municipality, China

Abstract: Shadow price estimation of pollutants is an important problem for firm in making decisions, maximising desirable outputs, controlling product costs, and buying or selling pollutant permits in the secondary emissions trading market. In this paper we construct a pricing framework based on the directional output distance function, the fruit fly optimisation approach, and the simulated annealing algorithm to solve this pricing problem, and then test the framework using six coal mining firms with differing operating scales. Examples show that this new framework successfully determined the optimal shadow prices of the pollutants, with each firm having significantly different shadow prices for its pollutants because of their differing production frontiers.

Keywords: pollutants; environmental pollution; shadow price estimation; directional output distance function; fruit fly optimisation; FOA; simulated annealing; pricing framework; coal mining; shadow prices.

DOI: 10.1504/IJETM.2015.071150

International Journal of Environmental Technology and Management, 2015 Vol.18 No.3, pp.218 - 230

Received: 08 May 2014
Accepted: 10 Mar 2015
Published online: 13 Aug 2015 *

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