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Allocative efficiency of technically inefficient production units

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  • Bogetoft, Peter
  • Fare, Rolf
  • Obel, Borge

Abstract

We discuss how to measure allocative efficiency without presuming technical efficiency. This is relevant when it is easier to introduce reallocations than improvements of technical efficiency. We compare the approach to the traditional one of assuming technical efficiency before measuring allocative efficiency. In particular, we develop necessary and sufficient conditions on the technology to ensure consistent measures and we give dual organizational interpretations of the approaches.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Operational Research.

Volume (Year): 168 (2006)
Issue (Month): 2 (January)
Pages: 450-462

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Handle: RePEc:eee:ejores:v:168:y:2006:i:2:p:450-462

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Web page: http://www.elsevier.com/locate/eor

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  1. Agrell, Per J. & Bogetoft, Peter & Tind, Jorgen, 2002. "Incentive plans for productive efficiency, innovation and learning," International Journal of Production Economics, Elsevier, vol. 78(1), pages 1-11, July.
  2. Niels Christian Petersen, 1990. "Data Envelopment Analysis on a Relaxed Set of Assumptions," Management Science, INFORMS, vol. 36(3), pages 305-314, March.
  3. Bogetoft, Peter, 1995. "Incentives and productivity measurements," International Journal of Production Economics, Elsevier, vol. 39(1-2), pages 67-77, April.
  4. Peter Bogetoft, 2000. "DEA and Activity Planning under Asymmetric Information," Journal of Productivity Analysis, Springer, vol. 13(1), pages 7-48, January.
  5. John McDonald, 1996. "Note: A Problem with the Decomposition of Technical Inefficiency into Scale and Congestion Components," Management Science, INFORMS, vol. 42(3), pages 473-474, March.
  6. Peter Bogetoft, 1996. "DEA on Relaxed Convexity Assumptions," Management Science, INFORMS, vol. 42(3), pages 457-465, March.
  7. Rolf Färe & Shawna Grosskopf, 2000. "Research Note. Decomposing Technical Efficiency with Care," Management Science, INFORMS, vol. 46(1), pages 167-168, January.
  8. Peter Bogetoft, 1994. "Incentive Efficient Production Frontiers: An Agency Perspective on DEA," Management Science, INFORMS, vol. 40(8), pages 959-968, August.
  9. Peter Bogetoft & Joseph M. Tama & Jørgen Tind, 2000. "Convex Input and Output Projections of Nonconvex Production Possibility Sets," Management Science, INFORMS, vol. 46(6), pages 858-869, June.
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Citations

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Cited by:
  1. Zofío, José Luis & Pastor, Jesús & Aparicio, Juan, 2010. "The Directional Profit Efficiency Measure: On Why Profit Inefficiency is either Technical or Allocative," Working Papers in Economic Theory 2010/09, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  2. Bruno De Borger & Kristiaan Kerstens & Diego Prior & Ignace Van de Woestyne, 2013. "Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions," Applied Economics, Taylor & Francis Journals, vol. 45(24), pages 3529-3529, August.
  3. A. Mantovi, 2013. "Differential duality," Economics Department Working Papers 2013-EP05, Department of Economics, Parma University (Italy).
  4. Bogetoft, Peter & Wang, Dexiang, 1999. "Estimating the Potential Gains from Mergers: The Danish Agricultural Extension Services," Unit of Economics Working papers 24207, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
  5. Peter Bogetoft & Dexiang Wang, 2005. "Estimating the Potential Gains from Mergers," Journal of Productivity Analysis, Springer, vol. 23(2), pages 145-171, 05.
  6. Aparicio, Juan & Pastor, Jesús & Zofío, José Luis, 2013. "How to properly decompose economic efficiency using technical and allocative criteria with non-homothetic DEA technologies," Working Papers in Economic Theory 2013/11, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  7. Aparicio, Juan & Borras, Fernando & Pastor, Jesus T. & Vidal, Fernando, 2013. "Accounting for slacks to measure and decompose revenue efficiency in the Spanish Designation of Origin wines with DEA," European Journal of Operational Research, Elsevier, vol. 231(2), pages 443-451.
  8. Andrea Mantovi, 2013. "On the commutativity of expansion and substitution effects," Journal of Economics, Springer, vol. 110(1), pages 83-105, September.
  9. A. Mantovi, 2013. "On the geometry of luxury," Economics Department Working Papers 2013-EP02, Department of Economics, Parma University (Italy).
  10. Fandel, Günter & Lorth, Michael, 2009. "On the technical (in)efficiency of a profit maximum," International Journal of Production Economics, Elsevier, vol. 121(2), pages 409-426, October.

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