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A Shadow Price Approach to Technical Efficiency Measurement

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  • Laurens CHERCHYE
  • Tom VAN PUYENBROECK

Abstract

The axiomatic literature on technical efficiency measurement has drawn attention to the indication problem of the Debreu-Farrell (DF) measure. We follow a shadow price approach to preserve the DF benchmark while reconciling it with the Koopmans efficiency characterization. First, we define a set of Koopmans efficient references that can be rationalized in a similar way as the DF projection. The indication problem is then captured using a measure of implicit allocative or mix efficiency, also interpretable as a dominance measure in price space. We consequently present a mix-adjusted DF framework for efficiency measurement in which e.g. the Zieschang (1984) procedure can be fitted.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces9924.

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Date of creation: Nov 1999
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Handle: RePEc:ete:ceswps:ces9924

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  1. 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, vol. 13(3), pages 568-98, October.
  2. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
  3. Rolf F�re & Shawna Grosskopf, 1998. "Shadow Pricing of Good and Bad Commodities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 584-590.
  4. Cherchye, Laurens & Van Puyenbroeck, Tom, 2001. "Product mixes as objects of choice in non-parametric efficiency measurement," European Journal of Operational Research, Elsevier, vol. 132(2), pages 287-295, July.
  5. Gary D. FERRIER & Kristiaan KERSTENS & Philippe VANDEN EECKAUT, 1994. "Radial and Nonradial Technical Efficiency Measures on DEA Reference Technology : A Comparison Using US Banking Data," Discussion Papers (REL - Recherches Economiques de Louvain) 1994043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  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. Robert Russell, R., 1985. "Measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 35(1), pages 109-126, February.
  8. Fare, Rolf & Knox Lovell, C. A., 1978. "Measuring the technical efficiency of production," Journal of Economic Theory, Elsevier, vol. 19(1), pages 150-162, October.
  9. Robert Russell, R., 1990. "Continuity of measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 51(2), pages 255-267, August.
  10. Banker, Rajiv D & Maindiratta, Ajay, 1988. "Nonparametric Analysis of Technical and Allocative Efficiencies in Production," Econometrica, Econometric Society, vol. 56(6), pages 1315-32, November.
  11. Christensen, Flemming & Hougaard, Jens Leth & Keiding, Hans, 1999. "An axiomatic characterization of efficiency indices," Economics Letters, Elsevier, vol. 63(1), pages 33-37, April.
  12. Kopp, Raymond J., 1981. "Measuring the technical efficiency of production: A comment," Journal of Economic Theory, Elsevier, vol. 25(3), pages 450-452, December.
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Cited by:
  1. Sahoo, Biresh K. & Tone, Kaoru, 2009. "Decomposing capacity utilization in data envelopment analysis: An application to banks in India," European Journal of Operational Research, Elsevier, vol. 195(2), pages 575-594, June.

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