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Allocative efficiency measurement revisited: Do we really need input prices?

  • Badunenko, Oleg
  • Fritsch, Michael
  • Stephan, Andreas

The traditional approach to measuring allocative efficiency is based on input prices, which are rarely known at the firm level. This paper proposes a new approach to measure allocative efficiency which is based on the output-oriented distance to the frontier in a profit?technical efficiency space-and which does not require information on input prices. To validate the new approach, we perform a Monte-Carlo experiment which provides evidence that the estimates of the new and the traditional approach are highly correlated. Finally, as an illustration, we apply the new approach to a sample of about 900 enterprises from the chemical industry in Germany.

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Paper provided by European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe in its series Working Paper Series with number 2006,7.

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Date of creation: 2006
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Handle: RePEc:zbw:euvgra:20067
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