The biennial Malmquist productivity change index
In this paper we introduce a new Malmquist productivity index that has three attractive features: it avoids linear programming infeasibilities under variable returns to scale, it allows for technical regress, and it does not need to be recomputed when a new time period is added to the data set. The proposed index is compared to both the adjacent Malmquist index and the global Malmquist index in an empirical example, which highlights the drawbacks of the existing indexes compared to the proposed biennial Malmquist index. Our results show that 13% of the observations in the data set may have to be ignored due to infeasibilities when decomposing the adjacent Malmquist index. Using only this reduced data set does at times lead to quite different results than those generated by applying the proposed biennial Malmquist index to the entire data set. The empirical example also shows that productivity change estimated between two time periods using the global Malmquist index change substantially when a third time period is added to the data set, whereas the proposed biennial Malmquist index is immune to this problem.
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