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A Shadow Price Approach to Technical Efficiency Measurement

  • Laurens Cherchye

    ()

  • Tom Van Puyenbroeck

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.

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File URL: http://www.econ.kuleuven.ac.be/ew/academic/econover/Papers/DPS9924.pdf
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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics in its series Public Economics Working Paper Series with number ces9924.

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Length: 20 pp.
Date of creation: 1999
Date of revision:
Handle: RePEc:wpe:papers:ces9924
Note: A profoundly revised version of this paper is available under the title "Technical Efficiency Evaluation: Naturally Dual;" see http://ideas.repec.org/p/wpe/papers/wptchff.html.
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  1. Robert Russell, R., 1985. "Measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 35(1), pages 109-126, February.
  2. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  3. Robert Russell, R., 1990. "Continuity of measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 51(2), pages 255-267, August.
  4. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
  5. Banker, Rajiv D & Maindiratta, Ajay, 1988. "Nonparametric Analysis of Technical and Allocative Efficiencies in Production," Econometrica, Econometric Society, vol. 56(6), pages 1315-32, November.
  6. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-98, October.
  7. Christensen, Flemming & Hougaard, Jens Leth & Keiding, Hans, 1999. "An axiomatic characterization of efficiency indices," Economics Letters, Elsevier, vol. 63(1), pages 33-37, April.
  8. Cherchye, Laurens & Van Puyenbroeck, Tom, 2001. "Product mixes as objects of choice in non-parametric efficiency measurement," European Journal of Operational Research, Elsevier, vol. 132(2), pages 287-295, July.
  9. 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.
  10. Gary D. FERRIER & Kristiaan KERSTENS & Philippe VANDEN EECKAUT, 1994. "Radial and Nonradial Technical Efficiency Measures on DEA Reference Technology : A Comparison Using US Banking Data," Discussion Papers (REL - Recherches Economiques de Louvain) 1994043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  11. Kopp, Raymond J., 1981. "Measuring the technical efficiency of production: A comment," Journal of Economic Theory, Elsevier, vol. 25(3), pages 450-452, December.
  12. Rolf F�re & Shawna Grosskopf, 1998. "Shadow Pricing of Good and Bad Commodities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 584-590.
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