Firm and industry level profit efficiency analysis using absolute and uniform shadow prices
We discuss the nonparametric approach to profit efficiency analysis at the firm and industry levels in the absence of complete price information. Two new insights are developed. First, we measure profit inefficiency in monetary terms using absolute shadow prices. Second, we evaluate all firms using the same input-output prices. This allows us to aggregate firm-level profit inefficiencies to the overall industry inefficiency. Besides the measurement of profit losses, the presented approach enables one to recover absolute price information from quantity data. We conduct a series of Monte Carlo simulations to study the performance of the proposed approach in controlled production environments.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Li, Sung-ko & Cheng, Yuk-shing, 2007. "Solving the puzzles of structural efficiency," European Journal of Operational Research, Elsevier, vol. 180(2), pages 713-722, July.
- Timo Kuosmanen, 2003. "Duality Theory of Non-convex Technologies," Journal of Productivity Analysis, Springer, vol. 20(3), pages 273-304, November.
- Fare, Rolf & Grosskopf, Shawna, 1990. "A distance function approach to price efficiency," Journal of Public Economics, Elsevier, vol. 43(1), pages 123-126, October.
- Charles Blackorby & R. Russell, 1999. "Aggregation of Efficiency Indices," Journal of Productivity Analysis, Springer, vol. 12(1), pages 5-20, August.
- Forsund, Finn R & Hjalmarsson, Lennart, 1979.
"Generalised Farrell Measures of Efficiency: An Application to Milk Processing in Swedish Dairy Plants,"
Royal Economic Society, vol. 89(354), pages 294-315, June.
- Førsund, Finn R. & Hjalmarsson, Lennart, 1978. "Generalized Farrell Measures of Efficiency: An Application to Milk Processing in Swedish Dairy Plants," Working Paper Series 17, Research Institute of Industrial Economics.
- Glass, J.C. & McCallion, G. & McKillop, D.G. & Stringer, K., 2006. "A 'technically level playing-field' profit efficiency analysis of enforced competition between publicly funded institutions," European Economic Review, Elsevier, vol. 50(6), pages 1601-1626, August.
- Ten Raa, T., 2004.
"Aggregation of Productivity Indices : The Allocative Efficiency Correction,"
2004-62, Tilburg University, Center for Economic Research.
- Thijs Raa, 2005. "Aggregation of Productivity Indices: The Allocative Efficiency Correction," Journal of Productivity Analysis, Springer, vol. 24(2), pages 203-209, October.
- Ten Raa, T., 2005. "Aggregation of productivity indices : The allocative efficiency correction," Other publications TiSEM 0c775438-4bfa-44bd-8111-2, Tilburg University, School of Economics and Management.
- Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-598, October.
- Norman Keith Womer & Homee Shroff & Thomas Gulledge & Kingsley Haynes, 2003. "Measuring efficiency with a linear economic model," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1459-1467.
- Timo Kuosmanen, 2006.
"Valuing Environmental Factors in Cost-Benefit Analysis Using Data Envelopment Analysis,"
2006.96, Fondazione Eni Enrico Mattei.
- Kuosmanen, Timo & Kortelainen, Mika, 2007. "Valuing environmental factors in cost-benefit analysis using data envelopment analysis," Ecological Economics, Elsevier, vol. 62(1), pages 56-65, April.
- Mika Kortelainen & Timo Kuosmanen, 2007.
"Eco-efficiency analysis of consumer durables using absolute shadow prices,"
Journal of Productivity Analysis,
Springer, vol. 28(1), pages 57-69, October.
- Mika Kortelainen & Timo Kuosmanen, 2005. "Eco-Efficiency Analysis of Consumer Durables Using Absolute Shadow Prices," Public Economics 0511022, EconWPA.
- Ylvinger, Svante, 2000. "Industry performance and structural efficiency measures: Solutions to problems in firm models," European Journal of Operational Research, Elsevier, vol. 121(1), pages 164-174, February.
- Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
- Laurens Cherchye & Tom Van Puyenbroeck, 2002.
"Profit Efficiency Analysis Under Limited Information. With an Application to German Farm Types,"
Public Economics Working Paper Series
ces0202, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
- Cherchye, Laurens & Van Puyenbroeck, Tom, 2007. "Profit efficiency analysis under limited information with an application to German farm types," Omega, Elsevier, vol. 35(3), pages 335-349, June.
- Kuosmanen, Timo & Cherchye, Laurens & Sipilainen, Timo, 2006.
"The law of one price in data envelopment analysis: Restricting weight flexibility across firms,"
European Journal of Operational Research,
Elsevier, vol. 170(3), pages 735-757, May.
- Timo Kuosmanen & Laurens Cherchye & Timo Sipiläinen, 2003. "The Law of One Price in Data Envelopment Analysis: Restricting Weight Flexibility Across Firms," Microeconomics 0312006, EconWPA, revised 18 Dec 2003.
- Robert G. Chambers, 2002. "Exact nonradial input, output, and productivity measurement," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(4), pages 751-765.
- Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
- 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 256-275, March-Apr.
- Kuosmanen, Timo & Post, Thierry, 2001. "Measuring economic efficiency with incomplete price information: With an application to European commercial banks," European Journal of Operational Research, Elsevier, vol. 134(1), pages 43-58, October.
- Subhash Ray, 2007. "Shadow profit maximization and a measure of overall inefficiency," Journal of Productivity Analysis, Springer, vol. 27(3), pages 231-236, June.
- Banker, Rajiv D & Maindiratta, Ajay, 1988. "Nonparametric Analysis of Technical and Allocative Efficiencies in Production," Econometrica, Econometric Society, vol. 56(6), pages 1315-1332, November.
- Timo Kuosmanen & Mika Kortelainen & Timo Sipiläinen & Laurens Cherchye, 2005. "Firm and Industry Level Profit Efficiency Analysis Under Incomplete Price Data: A Nonparametric Approach based on Absolute and Uniform Shadow Prices," Microeconomics 0509011, EconWPA.
- Fare, Rolf & Grosskopf, Shawna & Nelson, Julianne, 1990. "On Price Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 709-720, August.
- Rolf Fare & Shawna Grosskopf & William Weber, 2004. "The effect of risk-based capital requirements on profit efficiency in banking," Applied Economics, Taylor & Francis Journals, vol. 36(15), pages 1731-1743.
- Dyson, R. G. & Allen, R. & Camanho, A. S. & Podinovski, V. V. & Sarrico, C. S. & Shale, E. A., 2001. "Pitfalls and protocols in DEA," European Journal of Operational Research, Elsevier, vol. 132(2), pages 245-259, July.
- Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-597, May.
- Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
- Fare, Rolf & Grosskopf, Shawna, 1995. "Nonparametric tests of regularity, Farrell efficiency, and goodness-of-fit," Journal of Econometrics, Elsevier, vol. 69(2), pages 415-425, October.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:202:y:2010:i:2:p:584-594. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.