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Profit Efficiency Analysis Under Limited Information. With an Application to German Farm Types

Laurens Cherchye and Tom Van Puyenbroeck

Public Economics Working Paper Series from Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics

Abstract: Lack of information about technology and prices often hampers the empirical assessment of the validity of the profit maximization hypothesis. We show that the non-parametric Data Envelopment Analysis (DEA) methodology comprises natural tools for dealing with such incomplete information. In particular, we focus on the economic meaning of the DEA model that builds on assumptions of monotone and convex production possibility sets, and provide some extensions that further exploit this economic interpretation. This perspective on DEA is all the more attractive since its original use for technical efficiency analysis is sometimes questionable given its restrictive production assumptions. An application to German farm types complements our methodological discussion. By using nonparametric tools to test specific hypotheses about profit differences, we further demonstrate the potential of the non-parametric approach in deriving strong and robust statistical evidence while imposing minimal structure on the setting under study.

Keywords: profit maximization hypothesis; Data Envelopment Analysis; non-parametric techniques; agriculture (search for similar items in EconPapers)
JEL-codes: C12 C14 D21 P32 Q12 (search for similar items in EconPapers)
Pages: 28 pp.
Date: 2002
New Economics Papers: this item is included in nep-agr and nep-eff
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Citations: View citations in EconPapers (3)

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Journal Article: Profit efficiency analysis under limited information with an application to German farm types (2007) Downloads
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