Estimating indirect allocative inefficiency and productivity change

Hirofumi Fukuyama () and W L Weber
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W L Weber: Southeast Missouri State University

Journal of the Operational Research Society, 2009, vol. 60, issue 11, 1594-1608

Abstract: Abstract Building on the method used in previous indirect production studies, we construct an indicator of indirect output allocative inefficiency. Our indicator equals the difference between a revenue-constrained directional input distance function and a directional input distance function that depends on outputs, rather than revenue. The indicator measures the overuse of inputs that occurs when firms do not choose a revenue maximizing mix of outputs. Adding a time dimension allows productivity change to be measured. In an empirical illustration of our method we find that Japanese banks use, between 2% and 7%, too many inputs because bank outputs are inefficiently allocated.

Keywords: DEA (data envelopment analysis); indirect allocative inefficiency; directional distance functions; productivity change; Japanese banking (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (11)

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DOI: 10.1057/jors.2009.62

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