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A DEA estimation of a lower bound for firms' allocative efficiency without information on price data

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  • Leleu, Hervé
  • Briec, Walter

Abstract

In this paper, we estimate a lower bound for the sum of firms' allocative efficiencies in the absence of information on prices. For this purpose, we only estimate technical efficiency at both the firm and the industry level using a directional distance function and choosing a relevant direction. Our result relies on the decomposition of overall inefficiency into technical and allocative inefficiency at both the firm and the industry level. The convexity of a technology induces a transfer from both total technical inefficiency and part of allocative inefficiency at the firm level to technical inefficiency solely at the industry level. The remaining firms' allocative inefficiency could be counted at the industry level. Hence, the difference between technical inefficiencies at both levels can be interpreted as a lower bound for the sum of allocative inefficiency in the industry. We show how to implement this bound in a DEA framework.

Suggested Citation

  • Leleu, Hervé & Briec, Walter, 2009. "A DEA estimation of a lower bound for firms' allocative efficiency without information on price data," International Journal of Production Economics, Elsevier, vol. 121(1), pages 203-211, September.
  • Handle: RePEc:eee:proeco:v:121:y:2009:i:1:p:203-211
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    8. W. Briec, 1997. "A Graph-Type Extension of Farrell Technical Efficiency Measure," Journal of Productivity Analysis, Springer, vol. 8(1), pages 95-110, March.
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    Cited by:

    1. Aparicio, Juan & Pastor, Jesus T. & Ray, Subhash C., 2013. "An overall measure of technical inefficiency at the firm and at the industry level: The ‘lost profit on outlay’," European Journal of Operational Research, Elsevier, vol. 226(1), pages 154-162.
    2. Wang, Ying-Ming & Chin, Kwai-Sang, 2010. "Some alternative models for DEA cross-efficiency evaluation," International Journal of Production Economics, Elsevier, vol. 128(1), pages 332-338, November.
    3. Juan Aparicio & Jesus T. Pastor & Subhash Ray, 2012. "An Overall Measure of Technical Inefficiency at the Firm and at the Industrial Level: The 'Lost Return on the Dollar' Revisited," Working papers 2012-02, University of Connecticut, Department of Economics.
    4. Mahlberg, Bernhard & Sahoo, Biresh K., 2011. "Radial and non-radial decompositions of Luenberger productivity indicator with an illustrative application," International Journal of Production Economics, Elsevier, vol. 131(2), pages 721-726, June.
    5. Fang, Lei & Li, Hecheng, 2013. "A comment on “solving the puzzles of structural efficiency”," European Journal of Operational Research, Elsevier, vol. 230(2), pages 444-446.
    6. Francesco Sandulli & José Fernández-Menéndez & Antonio Rodríguez-Duarte & José López-Sánchez, 2012. "The productivity payoff of information technology in multimarket SMEs," Small Business Economics, Springer, vol. 39(1), pages 99-117, July.

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