Firm and industry level profit efficiency analysis using absolute and uniform shadow prices. (English) Zbl 1179.90111
Summary: We discuss the nonparametric approach to profit efficiency analysis at the firm and industry levels in the absence of complete price information. Two new insights are developed. First, we measure profit inefficiency in monetary terms using absolute shadow prices. Second, we evaluate all firms using the same input-output prices. This allows us to aggregate firm-level profit inefficiencies to the overall industry inefficiency. Besides the measurement of profit losses, the presented approach enables one to recover absolute price information from quantity data. We conduct a series of Monte Carlo simulations to study the performance of the proposed approach in controlled production environments.
References:
| [1] | Afriat, S., Efficiency estimation of production functions, International Economic Review, 13, 568-598 (1972) · Zbl 0264.90022 |
| [2] | Balk, B. M., Industrial Price, Quantity, and Productivity Indices: The Micro-Economic Theory and an Application (1998), Kluwer: Kluwer Boston |
| [3] | Banker, R. D.; Maindiratta, A., Nonparametric analysis of technical and allocative efficiencies in production, Econometrica, 56, 1315-1332 (1988) · Zbl 0657.90008 |
| [4] | Blackorby, C.; Russell, R. R., Aggregation of efficiency indices, Journal of Productivity Analysis, 12, 5-20 (1999) |
| [5] | Briec, W.; Dervaux, B.; Leleu, H., Industrial efficiency and aggregation of directional distance function, Journal of Economics, 79, 237-261 (2003) · Zbl 1058.91048 |
| [6] | Chambers, R. G., Exact nonradial input, output, and productivity measurement, Economic Theory, 20, 751-765 (2002) · Zbl 1080.91052 |
| [7] | Chambers, R. G.; Chung, Y.; Färe, R., Benefit and distance functions, Journal of Economic Theory, 70, 2, 407-419 (1996) · Zbl 0866.90027 |
| [8] | Chambers, R. G.; Chung, Y.; Färe, R., Profit, directional distance functions, and Nerlovian efficiency, Journal of Optimization Theory and Applications, 98, 2, 351-364 (1998) · Zbl 0909.90040 |
| [9] | Charnes, A.; Cooper, W.; Rhodes, E., Measuring the efficiency of decision making units, European Journal of Operational Research, 2, 429-444 (1978) · Zbl 0416.90080 |
| [10] | Cherchye, L.; van Puyenbroeck, T., Profit efficiency analysis under limited information with an application to German farm types, Omega, 35, 3, 335-349 (2007) |
| [11] | Dyson, R. G.; Allen, R.; Camanho, A. S.; Podinovski, V. V.; Sarrico, C. S.; Shale, E. A., Pitfalls and protocols in DEA, European Journal of Operational Research, 132, 2, 245-259 (2001) · Zbl 0980.90038 |
| [12] | Färe, R.; Grosskopf, S., Non-parametric tests of regularity, Farrell efficiency, and goodness of fit, Journal of Econometrics, 69, 415-425 (1995) · Zbl 0925.62159 |
| [13] | Färe, R.; Grosskopf, S., New Directions: Efficiency and Productivity (2004), Kluwer Academic Publishers: Kluwer Academic Publishers Dordrecht |
| [14] | Färe, R.; Grosskopf, S.; Nelson, J., On price efficiency, International Economic Review, 31, 709-720 (1990) · Zbl 0701.90010 |
| [15] | Färe, R.; Grosskopf, S.; Weber, W., The effect of risk-based capital requirements on profit efficiency in banking, Applied Economics, 36, 1731-1743 (2004) |
| [16] | Färe, R.; Primont, D., Multi-output Production and Duality: Theory and Applications (1995), Kluwer Academic Publishers: Kluwer Academic Publishers Boston |
| [17] | Farrell, M. J., The measurement of productive efficiency, Journal of the Royal Statistical Society Series A, 120, 3, 253-281 (1957) |
| [18] | Førsund, F.; Hjalmarsson, L., Generalized Farrell measures of efficiency: An application to milk processing in Swedish dairy plants, The Economic Journal, 89, 294-315 (1979) |
| [19] | Glass, J. C.; McCallion, G.; McKillop, D. G.; Stringer, K., A ‘technically level playing-field’ profit efficiency analysis of enforced competition between publicly funded institutions, European Economic Review, 50, 1601-1626 (2006) |
| [20] | Hanoch, G.; Rothschild, M., Testing assumptions of production theory: A nonparametric approach, Journal of Political Economy, 80, 256-275 (1972) |
| [21] | Koopmans, T. C., Analysis of production as an efficient combination of activities, (Koopmans, T. C., Activity Analysis of Production and Allocation: Proceedings of a Conference (1951), Yale University Press: Yale University Press New Haven) · Zbl 0045.09506 |
| [22] | Koopmans, T. C., Efficient allocation of resources, Econometrica, 19, 455-465 (1951) |
| [23] | Koopmans, T. C., Three Essays on the State of Economic Analysis (1957), McGraw-Hill: McGraw-Hill New York |
| [24] | Kortelainen, M.; Kuosmanen, T., Eco-efficiency analysis of consumer durables using absolute shadow prices, Journal of Productivity Analysis, 28, 1-2, 57-69 (2007) |
| [25] | Kuosmanen, T., Duality theory of non-convex technologies, Journal of Productivity Analysis, 20, 273-304 (2003) |
| [26] | Kuosmanen, T.; Cherchye, L.; Sipiläinen, T., The law of one price in data envelopment analysis: Restricting weight flexibility across firms, European Journal of Operational Research, 170, 3, 735-757 (2006) · Zbl 1091.90520 |
| [27] | Kuosmanen, T.; Kortelainen, M., Valuing environmental factors in cost-benefit analysis using data envelopment analysis, Ecological Economics, 62, 1, 56-65 (2007) |
| [28] | Kuosmanen, T., Kortelainen, M., Sipiläinen, T., Cherchye, L., 2005. Firm and industry level profit efficiency analysis under incomplete price data: A nonparametric approach based on absolute and uniform shadow prices. Discussion Paper 31, Economics, University of Joensuu. Available online at: <http://ideas.repec.org/p/wpa/wuwpmi/0509011.html>; Kuosmanen, T., Kortelainen, M., Sipiläinen, T., Cherchye, L., 2005. Firm and industry level profit efficiency analysis under incomplete price data: A nonparametric approach based on absolute and uniform shadow prices. Discussion Paper 31, Economics, University of Joensuu. Available online at: <http://ideas.repec.org/p/wpa/wuwpmi/0509011.html> |
| [29] | Kuosmanen, T.; Post, T., Measuring economic efficiency with incomplete price information: With an application to European commercial banks, European Journal of Operational Research, 134, 43-58 (2001) · Zbl 1017.91082 |
| [30] | Leleu, H., in press. Mixing DEA and FDH models together. Journal of the Operational Research Society. Available from: <http://dx.doi.org/10.1057/jors.2008.142; Leleu, H., in press. Mixing DEA and FDH models together. Journal of the Operational Research Society. Available from: <http://dx.doi.org/10.1057/jors.2008.142 · Zbl 1196.90079 |
| [31] | Li, S. K.; Cheng, Y. S., Solving the puzzles of structural efficiency, European Journal of Operational Research, 180, 713-722 (2007) · Zbl 1123.90325 |
| [32] | Li, S. K.; Ng, Y. C., Measuring the productive efficiency of a group of firms, International Advances in Economic Research, 1, 4, 377-390 (1995) |
| [33] | Luenberger, D. G., Benefit functions and duality, Journal of Mathematical Economics, 21, 461-481 (1992) · Zbl 0766.90011 |
| [34] | Luenberger, D. G., New optimality principles for economic efficiency and equilibrium, Journal of Optimization Theory and Applications, 75, 2, 221-264 (1992) · Zbl 0796.90015 |
| [35] | Luenberger, D. G., Dual Pareto efficiency, Journal of Economic Theory, 62, 70-85 (1994) · Zbl 0801.90018 |
| [36] | Nerlove, M., 1965. Estimation and Identification of Cobb-Douglas Production Functions. Rand McNally, Chicago, Illinois.; Nerlove, M., 1965. Estimation and Identification of Cobb-Douglas Production Functions. Rand McNally, Chicago, Illinois. |
| [37] | Ray, S., Shadow profit maximization and a measure of overall inefficiency, Journal of Productivity Analysis, 27, 231-236 (2007) |
| [38] | Ten Raa, T., Aggregation of productivity indices: The allocative efficiency correction, Journal of Productivity Analysis, 24, 2, 203-209 (2005) |
| [39] | Thanassoulis, E.; Portela, M. C.S.; Despic, O., Data envelopment analysis: The mathematical programming approach to efficiency analysis, (Fried, H. O.; Lovell, C. A.K.; Schmidt, S. S., The Measurement of Productive Efficiency and Productivity Growth (2008), Oxford University Press: Oxford University Press Oxford) |
| [40] | Varian, H. R., The non-parametric approach to production analysis, Econometrica, 52, 579-598 (1984) · Zbl 0558.90024 |
| [41] | Womer, N. K.; Shroff, H. F.E.; Gulledge, T. R.; Haynes, K. E., Measuring efficiency with linear economic model, Applied Economics, 35, 1459-1467 (2003) |
| [42] | Ylvinger, S., Industry performance and structural efficiency measures: Solutions to problems in firm models, European Journal of Operational Research, 121, 164-174 (2000) · Zbl 0948.91055 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
