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Nonparametric Methods for Evaluating Economic Efficiency and Imperfect Competition

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  • Maarit Kallio

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  • Markku Kallio

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    Abstract

    This article unifies and extends ideas from nonparametric production analysis and DEA for testing organizational efficiency. We show how the admissible price set can be restricted to account for prior information on prices. These restrictions may relate prices to input and output quantities in order to test noncompetitive behavior of the evaluated decision making unit. While the resulting efficiency tests cannot always be cast into linear programming problems, we discuss various solution strategies for the tests. Thereby we consider the question when does local optimality of the result guarantee global optimality. We also show how the decision maker's preferences, for example ranking information, can be adopted into DEA models in a simple manner. Finally, the approach with price restrictions is illustrated with an application to test noncompetitive behavior of the pulp and paper industries in Finland. Copyright Kluwer Academic Publishers 2002

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    File URL: http://hdl.handle.net/10.1023/A:1016590406678
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Productivity Analysis.

    Volume (Year): 18 (2002)
    Issue (Month): 2 (September)
    Pages: 171-189

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    Handle: RePEc:kap:jproda:v:18:y:2002:i:2:p:171-189

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    Web page: http://www.springerlink.com/link.asp?id=100296

    Related research

    Keywords: efficiency; production analysis; data envelopment analysis; noncompetitive behavior; pulp and paper industry;

    References

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    1. Hanoch, Giora & Rothschild, Michael, 1972. "Testing the Assumptions of Production Theory: A Nonparametric Approach," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 256-75, March-Apr.
    2. M. L. Chas-Amil & J. Buongiorno, 2000. "The demand for paper and paperboard: econometric models for the European Union," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 987-999.
    3. Thompson, Russell G. & Langemeier, Larry N. & Lee, Chih-Tah & Lee, Euntaik & Thrall, Robert M., 1990. "The role of multiplier bounds in efficiency analysis with application to Kansas farming," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 93-108.
    4. Halme, Merja & Korhonen, Pekka, 2000. "Restricting weights in value efficiency analysis," European Journal of Operational Research, Elsevier, vol. 126(1), pages 175-188, October.
    5. 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.
    6. 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.
    7. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-97, May.
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    Cited by:
    1. Eskelinen, Juha & Halme, Merja & Kallio, Markku, 2014. "Bank branch sales evaluation using extended value efficiency analysis," European Journal of Operational Research, Elsevier, vol. 232(3), pages 654-663.
    2. Bruno De Borger & Kristiaan Kerstens & Diego Prior & Ignace Van de Woestyne, 2013. "Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions," Applied Economics, Taylor & Francis Journals, vol. 45(24), pages 3529-3529, August.
    3. Briec, Walter & Kerstens, Kristiaan & Prior, Diego & Van de Woestyne, Ignace, 2010. "Tangency Capacity Notions Based upon the Profit and Cost Functions: A Non-Parametric Approach and a General Comparison," Working Papers 2010/04, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.

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