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Two-dimensional efficiency decomposition to measure the demand effect in productivity analysis

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  • Lee, Chia-Yen
  • Johnson, Andrew L.

Abstract

This paper proposes a two-dimensional efficiency decomposition (2DED) of profitability for a production system to account for the demand effect observed in productivity analysis. The first dimension identifies four components of efficiency: capacity design, demand generation, operations, and demand consumption, using Network Data Envelopment Analysis (Network DEA). The second dimension decomposes the efficiency measures and integrates them into a profitability efficiency framework. Thus, each component’s profitability change can be analyzed based on technical efficiency change, scale efficiency change and allocative efficiency change. An empirical study based on data from 2006 to 2008 for the US airline industry finds that the regress of productivity is mainly caused by a demand fluctuation in 2007–2008 rather than technical regression in production capabilities.

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Bibliographic Info

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

Volume (Year): 216 (2012)
Issue (Month): 3 ()
Pages: 584-593

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Handle: RePEc:eee:ejores:v:216:y:2012:i:3:p:584-593

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

Related research

Keywords: Data envelopment analysis; Productivity and profitability change; Efficiency decomposition; Demand fluctuation; Airlines industry;

References

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Citations

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Cited by:
  1. Georges Assaf, A. & Gillen, David, 2012. "Measuring the joint impact of governance form and economic regulation on airport efficiency," European Journal of Operational Research, Elsevier, vol. 220(1), pages 187-198.
  2. Lee, Chia-Yen & Johnson, Andrew L., 2014. "Proactive data envelopment analysis: Effective production and capacity expansion in stochastic environments," European Journal of Operational Research, Elsevier, vol. 232(3), pages 537-548.
  3. Peroni, Chiara & DiMaria, Charles Henri, 2012. "A new unit labour cost changes decomposition Four pillars of cost competitiveness recovery," MPRA Paper 38670, University Library of Munich, Germany.
  4. Appelbaum, Elie & Berechman, Joseph, 1991. "Demand conditions, regulation, and the measurement of productivity," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 379-400, February.
  5. Tavassoli, Mohammad & Faramarzi, Gholam Reza & Farzipoor Saen, Reza, 2014. "Efficiency and effectiveness in airline performance using a SBM-NDEA model in the presence of shared input," Journal of Air Transport Management, Elsevier, vol. 34(C), pages 146-153.
  6. Charles-Henri Dimaria & Chiara Peroni, 2012. "Unit labor cost and productivity recovery under non neutral technical change," Working Papers halshs-00826351, HAL.

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