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On structural and average technical efficiency

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Listed:
  • Giannis Karagiannis

Abstract

In this paper we explain the discrepancy between the efficiency of the average production unit and average efficiency by means of a covariance term relating size and technical efficiency and the extent of reallocation inefficiency. We show that, regardless of the degree of reallocation efficiency, the efficiency of the average production unit is lower than average efficiency when either size and efficiency are uncorrelated or larger units are more efficient than smaller ones. If however larger units are less efficient than smaller ones, the efficiency of the average production unit is higher than average efficiency as long as reallocation efficiency prevails. In addition, reallocation efficiency and a zero covariance term are sufficient conditions for the efficiency of the average production unit to be equal to average efficiency. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Giannis Karagiannis, 2015. "On structural and average technical efficiency," Journal of Productivity Analysis, Springer, vol. 43(3), pages 259-267, June.
    • Handle: RePEc:kap:jproda:v:43:y:2015:i:3:p:259-267
    DOI: 10.1007/s11123-015-0439-x
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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