On aggregation of technical and revenue efficiency measures

Mehmet A. Begen, Fredrik Ødegaard () and Jafar Sadeghi
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Mehmet A. Begen: Western University
Fredrik Ødegaard: Western University
Jafar Sadeghi: Western University

Journal of Productivity Analysis, 2024, vol. 62, issue 3, No 6, 335-350

Abstract: Abstract We discuss and propose new results regarding combined production efficiencies of an aggregate group, such as industry or region. Based on the production economic notion of aggregate technology, we present an algebraic representation of the aggregation output set, and use this to derive a new decomposition of the aggregation unit’s technical efficiency, e.g. a group’s technical efficiency. Our novel decomposition can identify more clearly the inefficiency due to the underlying units and the inefficiency due to the aggregation. For the special single output case, the proposed aggregation measure is consistent with the extant literature, and identical to Farrell’s measure of structural efficiency of a group. However, for the general multiple outputs case we show that there is a gap between the proposed measure and the extant literature. We illustrate the formal results with a numerical example based on a dataset from literature.

Keywords: Production Efficiency Measures; Aggregation; Decomposition; Technical Efficiency; Revenue Efficiency; Data Envelopment Analysis (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11123-023-00710-2

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