EconPapers    
Economics at your fingertips  
 

The directional profit efficiency measure: on why profit inefficiency is either technical or allocative

José Zofío, Jesus Pastor and Juan Aparicio

Journal of Productivity Analysis, 2013, vol. 40, issue 3, 257-266

Abstract: The directional distance function encompasses Shephard’s input and output distance functions and also allows nonradial projections of the assessed firm onto the frontier of the technology in a preassigned direction. However, the criteria underlying the choice of its associated directional vector are numerous. When market prices are observed and firms have a profit maximizing behavior, it seems natural to choose as the directional vector that projecting inefficient firms towards profit maximizing benchmarks. Based on that choice of directional vector, we introduce the directional profit efficiency measure and show that, in this general setting, profit inefficiency can be categorized as either technical, for firms situated within the interior of the technology, or allocative, for firms lying on the frontier. We implement and illustrate the analytical model by way of Data Envelopment Analysis techniques, and introduce the necessary optimization programs for profit inefficiency measurement. Copyright Springer Science+Business Media, LLC 2013

Keywords: Directional distance function; Profit efficiency; Technical efficiency; Allocative efficiency; C61; D21; D24 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11123-012-0292-0 (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:40:y:2013:i:3:p:257-266

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

DOI: 10.1007/s11123-012-0292-0

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 ().

 
Page updated 2025-03-19
Handle: RePEc:kap:jproda:v:40:y:2013:i:3:p:257-266