Cost and productivity
This study develops an analytical model capable of decomposing both intertemporal and multilateral cost variation. It begins by attributing cost variation to a price effect and a quantity effect. Then the quantity effect is decomposed into a productivity effect and an activity effect. The productivity effect in turn decomposes into a cost efficiency effect and, in the intertemporal context, a technical change effect. This paper also shows how the intertemporal and multilateral cost decompositions can be implemented, using linear programming techniques. These techniques offer certain advantages over conventional econometric techniques whenever a substantial portion of cost variation is due to variation in cost efficiency. The two cost decompositions are illustrated with a pair of benchmarking exercises based on a panel of 93 US electric power generating companies, in which variation in cost efficiency does play a key role. Copyright © 2000 John Wiley & Sons, Ltd.
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Volume (Year): 21 (2000)
Issue (Month): 1 ()
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- R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
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- Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-598, October.
- Gollop, Frank M & Karlson, Stephen H, 1978. "The Impact of the Fuel Adjustment Mechanism on Economic Efficiency," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 574-584, November.
- Kumbhakar, Subal C., 1997. "Modeling allocative inefficiency in a translog cost function and cost share equations: An exact relationship," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 351-356.
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