R. Robert Russell () (University of California, Riverside) William Schworm () (School of Economics, The University of New South Wales)
Abstract
Dmitruk and Koshevoy [1991 JET] provided a complete characterization of the class of technologies for which there exists an efficiency index satisfying the Fare-Lovell [1978 JET] axioms. The technologies implicit in the standard mathematical-programming methods of measuring efficiency, data envelopment analysis (DEA) and free-disposal-hull (FDH) analysis, belong to this class. We assess the ability of three well-known indexes, the Debreu-Farrell index, the Fare-Lovell index, and the Zieschang index, to satisfy not only the Fare-Lovell axioms but also continuity axioms (for technologies as well as input quantities), on this restricted class of technologies. Our principal conclusions are that (a) restriction to these data-based technologies adds continuity in input quantities to the properties satisfied by the Fare-Lovell and the Zieschang indexes (thus eliminating a salient advantage of the Debreu-Farrell index), but (b) none of the indexes satisfies all Fare-Lovell axioms (nor all continuity axioms) on either DEA or FDH technologies, and hence (c) trade-offs among the indexes remain. These findings provide motivation for the search for an index that does satisfy these axioms on DEA and FDH technologies.
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Publisher Info
Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number
2007-35.
Find related papers by JEL classification: C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
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