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Cost Decompositions and the Efficient Subset

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This paper develops two cost decompositions based on the multiplicative and additive Russell efficiency measurement framework. While the multiplicative cost decomposition is a straightforward extension of the standard cost decomposition, the decomposition we develop in this paper incorporates slacks directly so that efficiency is measured relative to the efficient subset. To show the applicability of our novel approach, we provide an illustration using a data set given in the literature.

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  • Rolf Färe & Hirofumi Fukuyama & Shawna Grosskopf & Valentin Zelenyuk, 2015. "Cost Decompositions and the Efficient Subset," CEPA Working Papers Series WP012015, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uqcepa:99
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    File URL: https://economics.uq.edu.au/files/5118/WP012015.pdf
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    1. Dmitruk, Andrei V. & Koshevoy, Gleb A., 1991. "On the existence of a technical efficiency criterion," Journal of Economic Theory, Elsevier, vol. 55(1), pages 121-144, October.
    2. Färe, Rolf & Grosskopf, Shawna, 2010. "Directional distance functions and slacks-based measures of efficiency: Some clarifications," European Journal of Operational Research, Elsevier, vol. 206(3), pages 702-702, November.
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    4. Briec, W., 2000. "An extended Fare-Lovell technical efficiency measure," International Journal of Production Economics, Elsevier, vol. 65(2), pages 191-199, April.
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    23. Liu, John S. & Lu, Louis Y.Y. & Lu, Wen-Min & Lin, Bruce J.Y., 2013. "Data envelopment analysis 1978–2010: A citation-based literature survey," Omega, Elsevier, vol. 41(1), pages 3-15.
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    Cited by:

    1. Viera Mendelová, 2021. "Decomposition of cost efficiency with adjustable prices: an application of data envelopment analysis," Operational Research, Springer, vol. 21(4), pages 2739-2770, December.
    2. Fukuyama, Hirofumi & Matousek, Roman, 2018. "Nerlovian revenue inefficiency in a bank production context: Evidence from Shinkin banks," European Journal of Operational Research, Elsevier, vol. 271(1), pages 317-330.
    3. Manh D. Pham & Valentin Zelenyuk, 2018. "Slack-based directional distance function in the presence of bad outputs: theory and application to Vietnamese banking," Empirical Economics, Springer, vol. 54(1), pages 153-187, February.
    4. Yang, Guo-liang & Fukuyama, Hirofumi, 2018. "Measuring the Chinese regional production potential using a generalized capacity utilization indicator," Omega, Elsevier, vol. 76(C), pages 112-127.
    5. Aparicio, Juan & Zofío, José L., 2023. "Decomposing profit change: Konüs, Bennet and Luenberger indicators," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).
    6. Fukuyama, Hirofumi & Matousek, Roman & Tzeremes, Nickolaos G., 2020. "A Nerlovian cost inefficiency two-stage DEA model for modeling banks’ production process: Evidence from the Turkish banking system," Omega, Elsevier, vol. 95(C).
    7. Zhao, Yu & Morita, Hiroshi & Maruyama, Yukihiro, 2019. "The measurement of productive performance with consideration for allocative efficiency," Omega, Elsevier, vol. 89(C), pages 21-39.

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    More about this item

    Keywords

    cost efficiency; efficient subset; Russell measure; directional distance function; slacks; data envelopment analysis;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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