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Axiomatic Foundations of Efficiency Measurement on Data-Generated Technologies

  • R. Robert Russell

    ()

    (University of California, Riverside)

  • William Schworm

    ()

    (School of Economics, The University of New South Wales)

Dmitruk and Koshevoy [1991 JET] provided a complete characterization of the class of technologies for which there exists an efficiency index satisfying the Fare-Lovell [1978 JET] axioms. The technologies implicit in the standard mathematical-programming methods of measuring efficiency, data envelopment analysis (DEA) and free-disposal-hull (FDH) analysis, belong to this class. We assess the ability of three well-known indexes, the Debreu-Farrell index, the Fare-Lovell index, and the Zieschang index, to satisfy not only the Fare-Lovell axioms but also continuity axioms (for technologies as well as input quantities), on this restricted class of technologies. Our principal conclusions are that (a) restriction to these data-based technologies adds continuity in input quantities to the properties satisfied by the Fare-Lovell and the Zieschang indexes (thus eliminating a salient advantage of the Debreu-Farrell index), but (b) none of the indexes satisfies all Fare-Lovell axioms (nor all continuity axioms) on either DEA or FDH technologies, and hence (c) trade-offs among the indexes remain. These findings provide motivation for the search for an index that does satisfy these axioms on DEA and FDH technologies.

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File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2007_35.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-35.

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Length: 22 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:swe:wpaper:2007-35
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  1. Zieschang, Kimberly D., 1984. "An extended farrell technical efficiency measure," Journal of Economic Theory, Elsevier, vol. 33(2), pages 387-396, August.
  2. Daniel J. Henderson & R. Robert Russell, 2005. "Human Capital And Convergence: A Production-Frontier Approach ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1167-1205, November.
  3. Pollitt, M.G., 1995. "Ownership and Efficiency in Nuclear Power Production," Cambridge Working Papers in Economics 9518, Faculty of Economics, University of Cambridge.
  4. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  5. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
  6. Fare, Rolf & Grosskopf, Shawna & Noh, Dong-Woon & Weber, William, 2005. "Characteristics of a polluting technology: theory and practice," Journal of Econometrics, Elsevier, vol. 126(2), pages 469-492, June.
  7. Robert Russell, R., 1990. "Continuity of measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 51(2), pages 255-267, August.
  8. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, vol. 92(3), pages 527-548, June.
  9. 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.
  10. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
  11. Robert Russell, R., 1985. "Measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 35(1), pages 109-126, February.
  12. repec:cor:louvrp:-571 is not listed on IDEAS
  13. R. Robert Russell & William Schworm, 2009. "Axiomatic Foundations of Inefficiency Measurement on Space," Discussion Papers 2009-07, School of Economics, The University of New South Wales.
  14. Fare, Rolf & Knox Lovell, C. A., 1978. "Measuring the technical efficiency of production," Journal of Economic Theory, Elsevier, vol. 19(1), pages 150-162, October.
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