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Profits and Productivity

Author

Listed:
  • E. Grifell-Tatjé

    (Departament d'Economia de l'Empresa, Universitat Autònoma de Barcelona, 08193 Bellaterra, Barcelona, Spain)

  • C. A. K. Lovell

    (School of Economics, University of New South Wales, Sydney, New South Wales 2052, Australia)

Abstract

In this study we consider the linkage between productivity change and profit change. We develop an analytical framework in which profit change between one period and the next is decomposed into three sources: (i) a productivity change effect (which includes a technical change effect and an operating efficiency effect), (ii) an activity effect (which includes a product mix effect, a resource mix effect, and a scale effect), and (iii) a price effect. We then show how to quantify the contribution of each effect, using only observed prices and quantities of products and resources in the two periods. We illustrate our analytical decomposition of profit change with an empirical application to Spanish banking during the period 1987--1994.

Suggested Citation

  • E. Grifell-Tatjé & C. A. K. Lovell, 1999. "Profits and Productivity," Management Science, INFORMS, vol. 45(9), pages 1177-1193, September.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:9:p:1177-1193
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    File URL: http://dx.doi.org/10.1287/mnsc.45.9.1177
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    profits; productivity; banking;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • G2 - Financial Economics - - Financial Institutions and Services
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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