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Profits and Productivity

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Author Info

  • E. Grifell-Tatjé

    (Departament d'Economia de l'Empresa, Universitat Autònoma de Barcelona, 08193 Bellaterra, Barcelona, Spain)

  • C. A. K. Lovell

    (School of Economics, University of New South Wales, Sydney, New South Wales 2052, Australia)

Abstract

In this study we consider the linkage between productivity change and profit change. We develop an analytical framework in which profit change between one period and the next is decomposed into three sources: (i) a productivity change effect (which includes a technical change effect and an operating efficiency effect), (ii) an activity effect (which includes a product mix effect, a resource mix effect, and a scale effect), and (iii) a price effect. We then show how to quantify the contribution of each effect, using only observed prices and quantities of products and resources in the two periods. We illustrate our analytical decomposition of profit change with an empirical application to Spanish banking during the period 1987--1994.

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File URL: http://dx.doi.org/10.1287/mnsc.45.9.1177
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 45 (1999)
Issue (Month): 9 (September)
Pages: 1177-1193

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Handle: RePEc:inm:ormnsc:v:45:y:1999:i:9:p:1177-1193

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Keywords: profits; productivity; banking;

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References

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  1. Eilon, S & Gold, Bela & Soesan, Judith, 1975. "A productivity study in a chemical plant," Omega, Elsevier, vol. 3(3), pages 329-343, June.
  2. A. Charnes & W. W. Cooper & E. Rhodes, 1981. "Evaluating Program and Managerial Efficiency: An Application of Data Envelopment Analysis to Program Follow Through," Management Science, INFORMS, vol. 27(6), pages 668-697, June.
  3. Garrigosa, E Genescá & Tatjé, E Grifell, 1992. "Profits and total factor productivity: A comparative analysis," Omega, Elsevier, vol. 20(5-6), pages 553-568.
  4. Eldor, Dan & Sudit, Ephraim F, 1981. "Productivity-based financial net income analysis," Omega, Elsevier, vol. 9(6), pages 605-611.
  5. Forsund, F.R., 1990. "The Malmquist Productivity Index," Memorandum 28/1990, Oslo University, Department of Economics.
  6. Gold, Bela, 1973. "Technology, productivity and economic analysis," Omega, Elsevier, vol. 1(1), pages 5-24, February.
  7. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  8. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  9. Diewert, W. E., 1973. "Functional forms for profit and transformation functions," Journal of Economic Theory, Elsevier, vol. 6(3), pages 284-316, June.
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