Regulatory impact of environmental standards on the eco-efficiency of firms

In this paper, we propose an approach to implement environmental standards into Data Envelopment Analysis (DEA) and in this way to measure their regulatory impact on eco‐efficiency of firms. One standard feature of basic DEA models lies in the exogeneity of inputs, desirable and undesirable outputs. Taking into account the environmental constraints, we therefore apply the bounded variable DEA model. The regulatory impact is assessed as difference in eco‐efficiency scores before and after fictive introduction of an environmental standard. Furthermore, we distinguish between weak and strong disposability of undesirable outputs and develop corresponding models. Assessing the regulatory impact of environmental standards in advance provides support for environmental policymakers in choosing appropriate instruments and in adjusting the intensity of regulation.