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Incentive Efficient Production Frontiers: An Agency Perspective on DEA

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  • Peter Bogetoft

    (Institute of Computer and System Sciences, Copenhagen School of Economics and Business Administration, DK-1925 Frederiksberg C, Denmark)

Abstract

In this paper, we examine how empirical production frontiers may contribute to the incentives of production units. We consider a series of Data Envelopment Analysis (DEA) frontiers, and we show when these may be incentive efficient in the sense that they contain all the information that are relevant for optimal incentive provision. The frontiers considered include the so-called constant, decreasing and varying return to scale models, the free disposability and the free replicability models, as well as the increasing and decreasing return to scale models based on a relaxed set of assumptions. Also, we illustrate how to design optimal incentive schemes based on such frontiers. Contents: 1. Introduction, 2. The Incentive Problem, 3. Production Frontiers and Productivity Measures, 4. Incentive Efficient Production Frontiers, 5. Extensions, 6. An Example, 7. Final Remarks, Mathematical Appendix, References.

Suggested Citation

  • Peter Bogetoft, 1994. "Incentive Efficient Production Frontiers: An Agency Perspective on DEA," Management Science, INFORMS, vol. 40(8), pages 959-968, August.
    • Handle: RePEc:inm:ormnsc:v:40:y:1994:i:8:p:959-968
    DOI: 10.1287/mnsc.40.8.959
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