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Measuring and decomposing profit inefficiency through the Slacks-Based Measure

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  • Aparicio, Juan
  • Ortiz, Lidia
  • Pastor, Jesus T.

Abstract

The Slacks-Based Measure was introduced by Tone (2001) in order to estimate technical efficiency in the input-output space by taking into account all sources of technical inefficiency and satisfying, at the same time, many interesting properties. Since then, the Slacks-Based Measure has attracted the interest of numerous researchers and practitioners. The Slacks-Based Measure has been applied to technical efficiency determination, productivity change measurement, the analysis of production process performance consisting of networks, and so on. However, so far, the Slacks-Based Measure has not been directly related to profit inefficiency as a component of the overall economic performance of firms. In this note, we show how a specific normalized measure of profit inefficiency may be decomposed through the Slacks-Based Measure.

Suggested Citation

  • Aparicio, Juan & Ortiz, Lidia & Pastor, Jesus T., 2017. "Measuring and decomposing profit inefficiency through the Slacks-Based Measure," European Journal of Operational Research, Elsevier, vol. 260(2), pages 650-654.
    • Handle: RePEc:eee:ejores:v:260:y:2017:i:2:p:650-654
    DOI: 10.1016/j.ejor.2016.12.038
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