Technical and Economic Efficiency Measures Under Short Run Profit Maximizing Behavior

Laurens Cherchye, Timo Kuosmanen and Hervé Leleu

Recherches économiques de Louvain, 2010, vol. 76, issue 2, 163-173

Abstract: The duality between measures of economic and technical efficiency has been extensively studied in the productive efficiency analysis. This duality ensures a meaningful interpretation of technical efficiency as economic efficiency evaluated at the most favorable shadow prices. This paper concentrates on economic efficiency as short run profit efficiency. We first argue that a modified version of Varian?s goodness-of-fit measure provides an appropriate economic efficiency measure in that context. Next, we show that a variant of the McFadden gauge function provides a natural dual efficiency measure for this short run profit efficiency measure. In particular, we establish two attractive properties of that technical efficiency measure: (i) it can be interpreted as Varian?s profit efficiency measure evaluated at shadow prices; (ii) it provides an upper bound for profit efficiency JEL Classification : D2, D24

Keywords: profit efficiency; technical efficiency; technology distance functions (search for similar items in EconPapers)
JEL-codes: D2 D24 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Technical and Economic Efficiency Measures under Short Run Profit Maximizing Behavior (2010)
Working Paper: Technical and economic efficiency measures under short run profit maximizing behavior (2010)
Working Paper: Technical and economic efficiency measures under short run profit maximizing behavior (2008)
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