Numeraire choice, shadow profit, and inefficiency measurement

Robert G. Chambers

European Journal of Operational Research, 2024, vol. 319, issue 2, 658-668

Abstract: We study a programming approach to inducing inefficiency measures for convex technologies. It takes the technology and the numeraire as given and uses variational arguments to isolate shadow prices that make a decision maker’s observed behavior as efficient as possible. The focus is on how the numeraire determines the element of the efficient frontier to which a decision maker’s performance is compared, the resulting technical inefficiency measure, and whether that measure offers a cardinal representation of the technology. We use the results to study an inefficiency measure, the polyhedral measure, that generalizes an array of existing measures.

Keywords: Inefficiency measures; Convex technologies; Indicator functions (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:319:y:2024:i:2:p:658-668

DOI: 10.1016/j.ejor.2024.06.041

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