Cost of Controlling Water Pollution and its Impact on Industrial Efficiency

This paper estimates the cost of effluent discharge regulations for firms located in the lower Kelani River catchment in Sri Lanka. The river provides water for many economic purposes including drinking water and avariety of ecosystem services. Employing multi-input and multi-output translog production technology, we estimate shadow prices of effluents and technical efficiency of firms belonging to eight industries. We also compute total abatement cost for firms under different policy scenarios related to simultaneous reduction in concentration of three water pollutants including current regulatory standards. Wide variations in firm and industry shadow prices (marginal abatement costs) provide a strong case for a comprehensive redesign of environmental policy to control water pollution by industries in Sri Lanka. [SANDEE Working Paper No. 112–16].