ABSTRACT
The production process for goods and services often generates undesirable “bad” outputs as well as desirable “goods.” For example, when electric utilities burn coal to generate electricity (a desirable output) they also generate pollution (an undesirable output). This pollution might include the discharge of sulfur dioxide, nitrogen oxide, or mercury into the air, or it might entail nuclear waste. Even hydroelectric dams generate a kind of undesirable output when the dam halts upstream migration of spawning salmon and other fishes. When undesirable outputs are jointly produced by-products of desirable output production there is an opportunity cost of reducing the undesirable output: less of the desirable output must be produced.
