Technical and Economic Efficiency Measures Under Short Run Profit Maximizing Behavior
AbstractThe duality between measures of economic and technical efficiency has been extensively studied in the productive efficiency analysis. This duality ensures a meaningful interpretation of technical efficiency as economic efficiency evaluated at the most favorable shadow prices. This paper concentrates on economic efficiency as short run profit efficiency. We first argue that a modified version of Varian?s goodness-of-fit measure provides an appropriate economic efficiency measure in that context. Next, we show that a variant of the McFadden gauge function provides a natural dual efficiency measure for this short run profit efficiency measure. In particular, we establish two attractive properties of that technical efficiency measure: (i) it can be interpreted as Varian?s profit efficiency measure evaluated at shadow prices; (ii) it provides an upper bound for profit efficiency JEL Classification : D2, D24
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Bibliographic InfoArticle provided by De Boeck Université in its journal Recherches économiques de Louvain.
Volume (Year): 76 (2010)
Issue (Month): 2 ()
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Web page: http://www.cairn.info/revue-recherches-economiques-de-louvain.htm
profit efficiency; technical efficiency; technology distance functions;
Other versions of this item:
- Laurens Cherchye & Timo Kuosmanen & Hervé Leleu, 2010. "Technical and Economic Efficiency Measures under Short Run Profit Maximizing Behavior," Discussion Papers (REL - Recherches Economiques de Louvain) 2010022, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Laurens Cherchye & Timo Kuosmanen & Hervé Leleu, 2008. "Technical and economic efficiency measures under short run profit maximizing behavior," Working Papers 2008-ECO-05, IESEG School of Management.
- D2 - Microeconomics - - Production and Organizations
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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