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A Shadow Price Approach to Technical Efficiency Measurement

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  • Laurens CHERCHYE
  • Tom VAN PUYENBROECK

Abstract

The axiomatic literature on technical efficiency measurement has drawn attention to the indication problem of the Debreu-Farrell (DF) measure. We follow a shadow price approach to preserve the DF benchmark while reconciling it with the Koopmans efficiency characterization. First, we define a set of Koopmans efficient references that can be rationalized in a similar way as the DF projection. The indication problem is then captured using a measure of implicit allocative or mix efficiency, also interpretable as a dominance measure in price space. We consequently present a mix-adjusted DF framework for efficiency measurement in which e.g. the Zieschang (1984) procedure can be fitted.

Suggested Citation

  • Laurens CHERCHYE & Tom VAN PUYENBROECK, 1999. "A Shadow Price Approach to Technical Efficiency Measurement," Working Papers of Department of Economics, Leuven ces9924, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces9924
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    1. Ferrier, G. D. & Kerstens, K. & Vanden Eeckaut, P., 1994. "Radial and nonradial technical efficiency measures on a DEA reference technology: a comparison using US banking data," LIDAM Reprints CORE 1156, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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