A homothetic reference technology in data envelopment analysis

Ole B. Olesen

European Journal of Operational Research, 2014, vol. 233, issue 3, 759-771

Abstract: The assumption of a homothetic production function is often maintained in production economics. In this paper we explore the possibility of maintaining homotheticity within a nonparametric DEA framework. The main contribution of this paper is to use the approach suggested by Hanoch and Rothschild (1972) to define a homothetic reference technology. We focus on the largest subset of data points that is consistent with such a homothetic production function. We use the HR-approach to define a piecewise linear homothetic convex reference technology. We propose this reference technology with the purpose of adding structure to the flexible non-parametric BCC DEA estimator. Motivation for why such additional structure sometimes is warranted is provided. An estimation procedure derived from the BCC-model and from a maintained assumption of homotheticity is proposed. The performance of the estimator is analyzed using simulation.

Keywords: Data enveopment analysis; DEA based estimation of a homothetic production function; Convex hull; Homothetic hull; Isoquant estimation; Intersection and sum form (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:233:y:2014:i:3:p:759-771

DOI: 10.1016/j.ejor.2013.09.024

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