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Inner and outer approximations of technology: A shadow profit approach

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  • Leleu, Hervé

Abstract

In this paper we extend the taxonomy on inner and outer approximations to a technology by assuming that price data are not available. Mimicking Varian [Varian H., Econometrica 1984;52(3):579], we introduce a Weak Axiom of Shadow Profit Maximization (WASPM) to test if observed production plans are compatible with technically efficient behavior. If the test fails for an observed sample, we then characterize the maximal subset of observed production plans that meets WASPM and we derive lower and upper bounds on technical efficiency for production plans that are observed but not in this subset. We also derive linear programs to implement these bounds.

Suggested Citation

  • Leleu, Hervé, 2013. "Inner and outer approximations of technology: A shadow profit approach," Omega, Elsevier, vol. 41(5), pages 868-871.
  • Handle: RePEc:eee:jomega:v:41:y:2013:i:5:p:868-871
    DOI: 10.1016/j.omega.2012.11.001
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    Cited by:

    1. Cherchye, Laurens & De Rock, Bram & Walheer, Barnabé, 2016. "Multi-output profit efficiency and directional distance functions," Omega, Elsevier, vol. 61(C), pages 100-109.
    2. Fu, Tsu-Tan & Juo, Jia-Ching & Chiang, Han-Chin & Yu, Ming-Miin & Huang, Mei-ying, 2016. "Risk-based decompositions of the meta profit efficiency of Taiwanese and Chinese banks," Omega, Elsevier, vol. 62(C), pages 34-46.
    3. Walheer, Barnabé & Zhang, Linjia, 2018. "Profit Luenberger and Malmquist-Luenberger indexes for multi-activity decision making units: the case of the star-rated hotel industry in China," RIEI Working Papers 2018-06, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    4. Portela, Maria Conceição A. Silva & Thanassoulis, Emmanuel, 2014. "Economic efficiency when prices are not fixed: disentangling quantity and price efficiency," Omega, Elsevier, vol. 47(C), pages 36-44.
    5. Subhash C. Ray, 2017. "The Transformation Function, Technical Efficiency, and the CCR Ratio," Working papers 2017-09, University of Connecticut, Department of Economics.

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