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Measuring consumption efficiency with utility theory and stochastic frontier analysis

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  • Jeong-Dong Lee
  • Chansoo Park
  • Dong-Hyun Oh
  • Tai-Yoo Kim

Abstract

The concept of production efficiency has been studied since the 1960s, but consumption activity as well may be inefficient for various reasons, such as product complexity, lack of information, the bounded rationality of the consumer and imperfect markets, to name a few. This study proposes a conceptual framework for measuring the consumption efficiency of differentiated products, based on traditional utility theory. It employs stochastic frontier analysis (SFA) in an empirical analysis. It makes use of hedonic price theory to link traditional utility theory and the SFA framework. When the developed model is applied to the Korean personal computer market, empirical results indicate the levels and distribution of consumption efficiency in that market. The findings afford us a better understanding of the characteristics of the innovation process in that market.

Suggested Citation

  • Jeong-Dong Lee & Chansoo Park & Dong-Hyun Oh & Tai-Yoo Kim, 2008. "Measuring consumption efficiency with utility theory and stochastic frontier analysis," Applied Economics, Taylor & Francis Journals, vol. 40(22), pages 2961-2968.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:22:p:2961-2968
    DOI: 10.1080/00036840600993908
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    References listed on IDEAS

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    Cited by:

    1. Alessandro Bonanno & Francesco Bimbo & Marco Costanigro & Alfons Oude Lansink & Rosaria Viscecchia, 2019. "Credence attributes and the quest for a higher price – a hedonic stochastic frontier approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(2), pages 163-192.
    2. Gautam Hazarika & Sourabh Bikas Paul, 2021. "India’s calorie consumption puzzle: insights from the stochastic cost frontier analysis of calorie purchases," Empirical Economics, Springer, vol. 60(6), pages 2993-3010, June.
    3. Andrea Pellegrini & Igor Sarman & Rico Maggi, 2021. "Understanding tourists’ expenditure patterns: a stochastic frontier approach within the framework of multiple discrete–continuous choices," Transportation, Springer, vol. 48(2), pages 931-951, April.

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