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Input price variation across locations and a generalized measure of cost efficiency

  • Ray, Subhash C.
  • Chen, Lei
  • Mukherjee, Kankana

We propose a non-parametric model for global cost minimization as a framework for optimal allocation of a firm's output target across multiple locations, taking account of differences in input prices and technologies across locations. This should be useful for firms planning production sites within a country and for foreign direct investment decisions by multi-national firms. Two illustrative examples are included. The first example considers the production location decision of a manufacturing firm across a number of adjacent states within the US. In the other example, we consider the optimal allocation of US and Canadian automobile manufacturers across the two countries.

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

Volume (Year): 116 (2008)
Issue (Month): 2 (December)
Pages: 208-218

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Handle: RePEc:eee:proeco:v:116:y:2008:i:2:p:208-218
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).
  2. 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.
  3. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  4. Subhash C. Ray & Kankana Mukherjee, 2000. "Decomposition of Cost Competitiveness in U.S. Manufacturing: Some State-by-State Comparisons," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 35(2), pages 133-153, July.
  5. Rajiv Banker & Hsihui Chang & Ram Natarajan, 2007. "Estimating DEA technical and allocative inefficiency using aggregate cost or revenue data," Journal of Productivity Analysis, Springer, vol. 27(2), pages 115-121, April.
  6. E. Grifell-Tatjé & C.A.K. Lovell, 2000. "Cost and productivity," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(1), pages 19-30.
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