Axiomatic Foundations of Efficiency Measurement on Data-Generated Technologies
AbstractDmitruk 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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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-35.
Length: 22 pages
Date of creation: Dec 2007
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Technical efficiency indexes; technical efficiency axioms;
Other versions of this item:
- R. Russell & William Schworm, 2009. "Axiomatic foundations of efficiency measurement on data-generated technologies," Journal of Productivity Analysis, Springer, vol. 31(2), pages 77-86, April.
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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