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A homothetic reference technology in data envelopment analysis

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  • Olesen, Ole B.

Abstract

The assumption of a homothetic production function is often maintained in production economics. In this paper we explore the possibility of maintaining homotheticity within a nonparametric DEA framework. The main contribution of this paper is to use the approach suggested by Hanoch and Rothschild (1972) to define a homothetic reference technology. We focus on the largest subset of data points that is consistent with such a homothetic production function. We use the HR-approach to define a piecewise linear homothetic convex reference technology. We propose this reference technology with the purpose of adding structure to the flexible non-parametric BCC DEA estimator. Motivation for why such additional structure sometimes is warranted is provided. An estimation procedure derived from the BCC-model and from a maintained assumption of homotheticity is proposed. The performance of the estimator is analyzed using simulation.

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  • Olesen, Ole B., 2014. "A homothetic reference technology in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 233(3), pages 759-771.
    • Handle: RePEc:eee:ejores:v:233:y:2014:i:3:p:759-771
    DOI: 10.1016/j.ejor.2013.09.024
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    Cited by:

    1. Färe, Rolf & Mizobuchi, Hideyuki & Zelenyuk, Valentin, 2021. "Hicks neutrality and homotheticity in technologies with multiple inputs and multiple outputs," Omega, Elsevier, vol. 101(C).
    2. Antonio Peyrache, 2022. "A Homothetic Data Generated Technology," CEPA Working Papers Series WP042022, School of Economics, University of Queensland, Australia.

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