Technical and Economic Efficiency Measures under Short Run Profit Maximizing Behavior

Laurens Cherchye, Timo Kuosmanen and Hervé Leleu

No 2010022, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The duality between measures of economic and technical efficiency has been extensively studied in the productive efficiency analysis. This duality ensures a meaningful interpretation of technical efficiency as economic efficiency evaluated at the most favourable shadow prices. This paper concentrates on economic efficiency as short run profit efficiency. We first argue that a modified version of Varian's goodness-of-it measure provides an appropriate economic efficiency measure in that context. Next, we show that a variant of the McFadden gauge function provides a natural dual efficiency measure for this short run profit efficiency measure. In particular we establish two attractive properties of that technical efficiency measure : (i) It can be interpreted as Varian's profit efficiency measure evaluated at shadow prices ; (ii) it provides an upper bound for profit efficiency

Keywords: Profit effiency; Technical efficiency; Technology distance functions (search for similar items in EconPapers)
JEL-codes: D2 D24 (search for similar items in EconPapers)
Date: 2010-06-01
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Technical and Economic Efficiency Measures Under Short Run Profit Maximizing Behavior (2010)
Working Paper: Technical and economic efficiency measures under short run profit maximizing behavior (2010)
Working Paper: Technical and economic efficiency measures under short run profit maximizing behavior (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2010022

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