Inner and outer approximations of technology: A shadow profit approach
AbstractIn this paper we extend the taxonomy on inner and outer approximations to a technology by assuming that price data are not available. Mimicking Varian [Varian H., Econometrica 1984;52(3):579], we introduce a Weak Axiom of Shadow Profit Maximization (WASPM) to test if observed production plans are compatible with technically efficient behavior. If the test fails for an observed sample, we then characterize the maximal subset of observed production plans that meets WASPM and we derive lower and upper bounds on technical efficiency for production plans that are observed but not in this subset. We also derive linear programs to implement these bounds.
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Bibliographic InfoArticle provided by Elsevier in its journal Omega.
Volume (Year): 41 (2013)
Issue (Month): 5 ()
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Other versions of this item:
- Hervé Leleu, 2012. "Inner and Outer Approximations of Technology: A Shadow Profit Approach," Working Papers 2012-ECO-06, IESEG School of Management.
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Public Economics Working Paper Series
ces0202, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
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