A Reverse Directional Distance Function to Reconcile Between Competing Efficiency Goals: An Application to Indian Manufacturing

In analysis of technical efficiency in production, either the maximum proportional increase in all outputs or a minimal proportional scaling down of all inputs is generally selected as the criterion. In the recent literature, the Directional Distance Function combines the two objectives by increasing output and reducing input simultaneously to the extent possible. This paper introduces a Reverse Directional Distance Function as one possible approach to resolve the conflict between incompatible goals through a minimal adjustment applicable to both of the two objectives. In our empirical analysis we apply the proposed method to Indian manufacturing where increasing the output and conserving energy use are both highly important objectives. A comparison of the feasible targets obtained through the conventional and the Reverse Directional Distance Functions yields an estimated tradeoff between output increase and CO2 reduction (due to energy conservation) along the frontier.