ABSTRACT We develop a framework for regulated production systems where output generation and pollution abatement impose competing technological demands. Using a multi‐ware technology, we model the production set as the intersection of two input requirement frontiers, one for production and one for abatement, each reflecting distinct trade‐offs. We characterise the efficient set using gaps in efficiency distances and recover shadow prices for smooth and non‐smooth frontiers, clarifying how subdifferentials govern shadow prices at switching points. To address unobserved heterogeneity in technological orientation, we estimate a full‐information maximum likelihood model with endogenous regime‐switching. Applying the framework to Chinese livestock farms, we recover regime‐specific land costs, identify drivers of regime assignment and quantify inefficiency using multi‐ware distances. Results reveal sharp asymmetries in spatial burdens between production and abatement, and systematic switching behaviour driven by inputs and weather. Our framework offers a widely applicable, policy‐relevant tool for evaluating environmental and economic performance. JEL Classification: D24, Q12, Q52
Yan et al. (Sun,) studied this question.