A homothetic reference technology in Data Envelopment Analysis
The assumption of a homothetic production function is often maintained in production economics. In this paper we explore the possibility of maintaining homotheticity within a nonparametric DEA framework. The main contribution of this paper is to use the approach suggested by Hanoch and Rothschild in 1972 to define a homothetic reference technology. We focus on the largest subset of data points that is consistent with such a homothetic production function. We use the HR-approach to define a piecewise linear homothetic convex reference technology. We propose this reference technology with the purpose of adding structure to the flexible non-parametric BCC DEA estimator. Motivation for why such additional structure sometimes is warranted is provided. An estimation procedure derived from the BCC-model and from a maintained assumption of homotheticity is proposed. The performance of the estimator is analyzed using simulation.
|Date of creation:||14 Aug 2012|
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- Simar, Leopold & Wilson, Paul W., 2002. "Non-parametric tests of returns to scale," European Journal of Operational Research, Elsevier, vol. 139(1), pages 115-132, May.
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- Olesen, Ole B. & Ruggiero, John, 2012. "Maintaining the Regular Ultra Passum Law in data envelopment analysis," Discussion Papers of Business and Economics 2/2012, Department of Business and Economics, University of Southern Denmark.
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