Profit efficiency analysis under limited information with an application to German farm types
AbstractLack of information about technology and prices often hampers the empirical assessment of the profit maximization hypothesis (viz. by measuring the degree of profit efficiency). The non-parametric Data Envelopment Analysis (DEA) methodology can deal with such incomplete information. We exploit the implicit but largely neglected profit interpretation of the DEA model that builds on assumptions of monotone and convex production possibility sets. We show how its embedded assessment of necessary conditions for profit maximization can be strengthened given partial information in the form of monetary sub-cost/-revenue data (that are often easier obtained than the pure quantity data). Finally, we argue that a 'mix' efficiency analysis is naturally complementary to such a profit efficiency analysis. An application to German farm types complements our methodological discussion. By using non-parametric statistical tests, we further demonstrate the potential of the non-parametric approach in deriving strong and robust statistical evidence while imposing minimal structure on the setting under study. In particular, we look for significant efficiency variation over regions.
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Bibliographic InfoArticle provided by Elsevier in its journal Omega.
Volume (Year): 35 (2007)
Issue (Month): 3 (June)
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Other versions of this item:
- Laurens Cherchye & Tom Van Puyenbroeck, 2002. "Profit Efficiency Analysis Under Limited Information. With an Application to German Farm Types," Public Economics Working Paper Series ces0202, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- P32 - Economic Systems - - Socialist Institutions and Their Transitions - - - Collectives; Communes; Agricultural Institutions
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
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