Theory and Application of Directional Distance Functions
In 1957 Farrell demonstrated how cost inefficiency could be decomposed into two mutually exclusive and exhaustive components: technical and allocative inefficiency. This result is consequence of the fact that—as shown by Shephard—the cost function and the input distance function (the reciprocal of Farrell's technical efficiency measure) are ‘dual’ to each other. Similarly, the revenue function and the output distance function are dual providing the basis for the decomposition of revenue inefficiency into technical and allocative components (see for example, Färe, Grosskopf and Lovell (1994)). Here we extend those results to include the directional distance function and its dual, the profit function. This provides the basis for defining and decomposing profit efficiency. As we show, the output and input distance functions (reciprocals of Farrell efficiency measures) are special cases of the directional distance function. We also show how to use the directional distance function as a tool for measuring capacity utilization using DEA type techniques. Copyright Kluwer Academic Publishers 2000
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 13 (2000)
Issue (Month): 2 (March)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/microeconomics/journal/11123/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fare, Rolf & Grosskopf, Shawna, 1997. "Profit efficiency, Farrell decompositions and the Mahler inequality1," Economics Letters, Elsevier, vol. 57(3), pages 283-287, December.
When requesting a correction, please mention this item's handle: RePEc:kap:jproda:v:13:y:2000:i:2:p:93-103. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.