On the inconsistency of the Malmquist-Luenberger index
AbstractApart from the well-known weaknesses of the standard Malmquist productivity index related to infeasibility and not accounting for slacks, already addressed in the literature, we identify a new and significant drawback of the Malmquist-Luenberger index decomposition that questions its validity as an empirical tool for environmental productivity measurement associated with the production of bad outputs. In particular, we show that the usual interpretation of the technical change component in terms of production frontier shifts can be inconsistent with its numerical value, thereby resulting in an erroneous interpretation of this component that passes on to the index itself. We illustrate this issue with a simple numerical example. Finally, we propose a solution for this inconsistency issue based on incorporating a new postulate for the technology related to the production of bad outputs.
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Bibliographic InfoPaper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2013/01.
Length: 19 pages
Date of creation: Jan 2013
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Data Envelopment Analysis; Malmquist-Luenberger productivity index; Technological change; Efficiency change; Directional distance function;
Other versions of this item:
- Aparicio, Juan & Pastor, Jesus T. & Zofio, Jose L., 2013. "On the inconsistency of the Malmquist–Luenberger index," European Journal of Operational Research, Elsevier, vol. 229(3), pages 738-742.
- 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
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
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