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The Difference Approach to Productivity Measurement and Exact Indicators

In: Advances in Efficiency and Productivity Analysis

Author

Listed:
  • W. Erwin Diewert

    (School of Economics, University of British Columbia)

  • Kevin J. Fox

    (School of Economics, UNSW)

Abstract

There are many decompositions of productivity growth for a production unit that rely on the ratio approach to index number theory. In this paper, three analogous decompositions for productivity growth in a difference approach to index number theory are obtained. The first approach uses the production unit’s value added function in order to obtain a suitable decomposition. It relies on various first order approximations to this function but in the end, the decomposition can be given an axiomatic interpretation. The second approach uses the cost constrained value added function and assumes that the reference technology for the production unit can be approximated by the free disposal conical hull of past observations of inputs used and outputs produced by the unit. The final approach uses a particular flexible functional form for the producer’s value added function and provides an exact decomposition of normalized value added.

Suggested Citation

  • W. Erwin Diewert & Kevin J. Fox, 2021. "The Difference Approach to Productivity Measurement and Exact Indicators," Springer Proceedings in Business and Economics, in: Christopher F. Parmeter & Robin C. Sickles (ed.), Advances in Efficiency and Productivity Analysis, pages 9-40, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-47106-4_2
    DOI: 10.1007/978-3-030-47106-4_2
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    References listed on IDEAS

    as
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    Cited by:

    1. W. Erwin Diewert, 2022. "Duality in Production," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 3, pages 57-168, Springer.

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    More about this item

    Keywords

    Productivity measurement; Index numbers; Indicator functions; The Bennet indicator; Flexible functional forms for value added functions; Technical and allocative efficiency; Nonparametric methods for production theory; Measures of technical progress;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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