A homothetic reference technology in Data Envelopment Analysis
AbstractThe assumption of a homothetic production function is often maintained in production economics. In this paper we explore the possibility of maintaining homotheticity within a nonparametric DEA framework. The main contribution of this paper is to use the approach suggested by Hanoch and Rothschild in 1972 to define a homothetic reference technology. We focus on the largest subset of data points that is consistent with such a homothetic production function. We use the HR-approach to define a piecewise linear homothetic convex reference technology. We propose this reference technology with the purpose of adding structure to the flexible non-parametric BCC DEA estimator. Motivation for why such additional structure sometimes is warranted is provided. An estimation procedure derived from the BCC-model and from a maintained assumption of homotheticity is proposed. The performance of the estimator is analyzed using simulation.
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Bibliographic InfoPaper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 14/2012.
Length: 24 pages
Date of creation: 14 Aug 2012
Date of revision:
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Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Phone: 65 50 32 33
Fax: 65 50 32 37
Web page: http://www.sdu.dk/ivoe
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Data Envelopment Analysis (DEA); DEA based estimation of a homothetic production function; linear programming; convex hull estimation; isoquant estimation; polyhedral sets in intersection and sum form;
Find related papers by JEL classification:
- C00 - Mathematical and Quantitative Methods - - General - - - General
- C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-ECM-2012-08-23 (Econometrics)
- NEP-EFF-2012-08-23 (Efficiency & Productivity)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Primont, Daniel & Primont, Diane, 1994. "Homothetic non-parametric production models," Economics Letters, Elsevier, vol. 45(2), pages 191-195, June.
- Kneip, Alois & Park, Byeong U. & Simar, L opold, 1998. "A Note On The Convergence Of Nonparametric Dea Estimators For Production Efficiency Scores," Econometric Theory, Cambridge University Press, vol. 14(06), pages 783-793, December.
- 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.
- 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.
- Simar, Leopold & Wilson, Paul W., 2002. "Non-parametric tests of returns to scale," European Journal of Operational Research, Elsevier, vol. 139(1), pages 115-132, May.
- Olesen, Ole B. & Ruggiero, John, 2012. "Maintaining the Regular Ultra Passum Law in data envelopment analysis," Discussion Papers of Business and Economics 2/2012, Department of Business and Economics, University of Southern Denmark.
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