Environmental performance and equilibrium

Firms' or industries' ranking in terms of environmental performance may be influenced by equilibrium and not only by ex ante technological characteristics. We adopt a natural definition of relative eco-efficiency between two industries operating within the same environmental constraint: the more eco-efficient one is the one that has the higher output level. We compare the relative eco-efficiency of two technologies characterizing two industries, and then of two firms within the same industry. We show that all these comparisons depend, through the equilibrium, on the environmental constraint imposed at the industry level. We also show that firm's profitability at the equilibrium depends on its eco-efficiency, but also on its labour elasticity and permits allocation: the more eco-efficient firm is not necessarily the more profitable one.