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Temporal technical and profit efficiency measurement: Definitions, duality and aggregation results

  • Briec, Walter
  • Comes, Christine
  • Kerstens, Kristiaan

The shortage function, an important tool in production theory, measures potential increases in outputs and decreases in inputs for a given direction g at a given date. To develop a temporal version of technical efficiency measurement, we introduce the concept of a temporal shortage function. This temporal efficiency measure is easily computed using linear programming. We also establish a duality result stating that the temporal profit function and the temporal shortage function are dual to one another. This result has two consequences. First, one can derive a shadow price path via the shadow prices of the temporal shortage function. Second, transposing the classic Farrell inefficiency decomposition, temporal profit efficiency is decomposed into temporal technical and temporal allocative efficiency components. Finally, in line with the recent literature on aggregation over firms, this contribution treats the possibilities and limits of the aggregation of efficiency measures over time.

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Article provided by Elsevier in its journal International Journal of Production Economics.

Volume (Year): 103 (2006)
Issue (Month): 1 (September)
Pages: 48-63

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Handle: RePEc:eee:proeco:v:103:y:2006:i:1:p:48-63
Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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  1. Tulkens, H. & Vanden Eeckaut, P., . "Non-parametric efficiency, progress and regress measures for panel data: Methodological aspects," CORE Discussion Papers RP -1132, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  8. McFadden, Daniel, 1978. "Cost, Revenue, and Profit Functions," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 1 McMaster University Archive for the History of Economic Thought.
  9. Rolf Fare & Shawna Grosskopf & Valentin Zelenyuk, 2008. "Aggregation of Nerlovian profit indicator," Applied Economics Letters, Taylor & Francis Journals, vol. 15(11), pages 845-847.
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