Reallocation of resources in multidivisional firms: A nonparametric approach

Recently, increasing research attention has been paid to studying and modelling the efficiency behaviour of multidivisional firms. In this paper, we propose a simple and intuitive nonparametric approach for cost minimising in multidivisional firms when resources can be reallocated across firms and/or divisions. In particular, we consider that resource reallocation occurs through the price system. One distinguishing feature of our approach is that no price information is required to evaluate cost efficiency. This feature clearly increases the practical usefulness of our methodology given that prices are generally unknown when resource reallocation is possible. We consider various extensions of our framework, present a simulation, and apply our methodology to the Chinese manufacturing sector using a firm-level dataset.