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Multi-output Profit Efficiency and Directional Distance Functions

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  • Laurens Cherchye
  • Bram De Rock
  • Barnabé Walheer

Abstract

We extend a recently developed DEA methodology for cost efficiency analysis towards profit efficiency settings. This establishes a novel DEA toolkit for profit efficiency assessments in situations with multiple inputs and multiple outputs. A distinguishing feature of our methodology is that it assumes output-specific production technologies. In addition, the methodology accounts for the use of joint inputs, and explicitly includes information on the allocation of inputs to individual outputs. We also establish a dual relationship between our multi-output profit inefficiency measure and a technical inefficiency measure that takes the form of a multi-output directional distance function. Finally, we demonstrate the empirical usefulness of our methodology by an empirical application to a large service company.
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Suggested Citation

  • Laurens Cherchye & Bram De Rock & Barnabé Walheer, 2014. "Multi-output Profit Efficiency and Directional Distance Functions," Working Papers ECARES ECARES 2014-51, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/177286
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    References listed on IDEAS

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    2. repec:eee:jomega:v:75:y:2018:i:c:p:1-12 is not listed on IDEAS
    3. repec:eee:ejores:v:263:y:2017:i:3:p:1095-1108 is not listed on IDEAS
    4. repec:eee:ejores:v:269:y:2018:i:3:p:1013-1026 is not listed on IDEAS
    5. Barnabé Walheer, 2016. "Multi-Sector Nonparametric Production-Frontier Analysis of the Economic Growth and the Convergence of the European Countries," Pacific Economic Review, Wiley Blackwell, vol. 21(4), pages 498-524, October.
    6. repec:eee:eneeco:v:70:y:2018:i:c:p:26-36 is not listed on IDEAS
    7. repec:kap:jproda:v:49:y:2018:i:1:d:10.1007_s11123-017-0523-5 is not listed on IDEAS
    8. Podinovski, Victor V., 2017. "Returns to scale in convex production technologies," European Journal of Operational Research, Elsevier, vol. 258(3), pages 970-982.

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