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Cost and productivity

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Author Info

  • E. Grifell-Tatjé

    (Departament d'Economia de l'Empresa, Universitat Aut�noma de Barcelona, 08193 Bellaterra, Barcelona, Spain)

  • C.A.K. Lovell

    (Department of Economics, Terry College of Business, University of Georgia, Athens, GA, USA)

Abstract

This study develops an analytical model capable of decomposing both intertemporal and multilateral cost variation. It begins by attributing cost variation to a price effect and a quantity effect. Then the quantity effect is decomposed into a productivity effect and an activity effect. The productivity effect in turn decomposes into a cost efficiency effect and, in the intertemporal context, a technical change effect. This paper also shows how the intertemporal and multilateral cost decompositions can be implemented, using linear programming techniques. These techniques offer certain advantages over conventional econometric techniques whenever a substantial portion of cost variation is due to variation in cost efficiency. The two cost decompositions are illustrated with a pair of benchmarking exercises based on a panel of 93 US electric power generating companies, in which variation in cost efficiency does play a key role. Copyright © 2000 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 21 (2000)
Issue (Month): 1 ()
Pages: 19-30

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Handle: RePEc:wly:mgtdec:v:21:y:2000:i:1:p:19-30

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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References

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  1. Greene, William H., 1980. "Maximum likelihood estimation of econometric frontier functions," Journal of Econometrics, Elsevier, Elsevier, vol. 13(1), pages 27-56, May.
  2. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, INFORMS, vol. 30(9), pages 1078-1092, September.
  3. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, Elsevier, vol. 2(6), pages 429-444, November.
  4. Schmidt, Peter & Knox Lovell, C. A., 1979. "Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers," Journal of Econometrics, Elsevier, Elsevier, vol. 9(3), pages 343-366, February.
  5. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-98, October.
  6. Stevenson, Rodney E., 1980. "Likelihood functions for generalized stochastic frontier estimation," Journal of Econometrics, Elsevier, Elsevier, vol. 13(1), pages 57-66, May.
  7. Gollop, Frank M & Karlson, Stephen H, 1978. "The Impact of the Fuel Adjustment Mechanism on Economic Efficiency," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 574-84, November.
  8. Kumbhakar, Subal C., 1997. "Modeling allocative inefficiency in a translog cost function and cost share equations: An exact relationship," Journal of Econometrics, Elsevier, Elsevier, vol. 76(1-2), pages 351-356.
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Citations

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Cited by:
  1. Van de Woestyne, Ignace & Kerstens, Kristiaan & Prior, Diego & De Borger, Bruno, 2009. "Static Efficiency Decompositions and Capacity Utilisation: Integrating Economic and Technical Capacity Notions," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2009/30, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  2. Subhash Ray, 2012. "Productivity Change over Time and the Dynamics of Cost Competitiveness: A Nonparametric Analysis of U.S. Manufacturing Data," Working papers, University of Connecticut, Department of Economics 2012-39, University of Connecticut, Department of Economics.
  3. Kevin J. Fox & R. Quentin Grafton & James Kirkley & Dale Squires, 2002. "Property Rights in a Fishery: Regulatory Change and Firm Performance," Economics and Environment Network Working Papers, Australian National University, Economics and Environment Network 0205, Australian National University, Economics and Environment Network.
  4. Subhash C. Ray & Lei Chen & Kankana Mukherjee, 2008. "Input Price Variation Across Locations and a Generalized Measure of Cost Efficiency," Working papers, University of Connecticut, Department of Economics 2008-11, University of Connecticut, Department of Economics.
  5. Portela, Maria Conceição A. Silva & Thanassoulis, Emmanuel, 2014. "Economic efficiency when prices are not fixed: disentangling quantity and price efficiency," Omega, Elsevier, Elsevier, vol. 47(C), pages 36-44.
  6. Robert Chambers, 2008. "Stochastic productivity measurement," Journal of Productivity Analysis, Springer, Springer, vol. 30(2), pages 107-120, October.

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