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Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions

  • Bruno De Borger
  • Kristiaan Kerstens
  • Diego Prior
  • Ignace Van de Woestyne

Starting from existing static decompositions of overall economic efficiency on nonparametric production and cost frontiers, this article proposes more comprehensive decompositions including several cost-based notions of capacity utilization. Furthermore, in case prices are lacking, we develop additional decompositions of overall technical efficiency integrating a technical concept of capacity utilization. These new efficiency decompositions provide a link between short and long run economic analysis and, in empirical work, avoid conflating inefficiency and differences in capacity utilization. An empirical analysis using a monthly panel of Chilean hydro-electric power plants illustrates the potential of these decomposition proposals.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.587783
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 31 (November)
Pages: 4125-4141

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Handle: RePEc:taf:applec:44:y:2012:i:31:p:4125-4141
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