Theory and Application of Directional Distance Functions

Rolf Färe () and Shawna Grosskopf

Journal of Productivity Analysis, 2000, vol. 13, issue 2, 93-103

Abstract: In 1957 Farrell demonstrated how cost inefficiency could be decomposed into two mutually exclusive and exhaustive components: technical and allocative inefficiency. This result is consequence of the fact that—as shown by Shephard—the cost function and the input distance function (the reciprocal of Farrell's technical efficiency measure) are ‘dual’ to each other. Similarly, the revenue function and the output distance function are dual providing the basis for the decomposition of revenue inefficiency into technical and allocative components (see for example, Färe, Grosskopf and Lovell (1994)). Here we extend those results to include the directional distance function and its dual, the profit function. This provides the basis for defining and decomposing profit efficiency. As we show, the output and input distance functions (reciprocals of Farrell efficiency measures) are special cases of the directional distance function. We also show how to use the directional distance function as a tool for measuring capacity utilization using DEA type techniques. Copyright Kluwer Academic Publishers 2000

Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (208)

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1007844628920 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jproda:v:13:y:2000:i:2:p:93-103

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11123/PS2

DOI: 10.1023/A:1007844628920

Access Statistics for this article

Journal of Productivity Analysis is currently edited by William Greene, Chris O'Donnell and Victor Podinovski

More articles in Journal of Productivity Analysis from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().