A Shadow Price Approach to Technical Efficiency Measurement

Laurens Cherchye and Tom van Puyenbroeck

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: The axiomatic literature on technical efficiency measurement has drawn attention to the indication problem of the Debreu-Farrell (DF) measure. We follow a shadow price approach to preserve the DF benchmark while reconciling it with the Koopmans efficiency characterization. First, we define a set of Koopmans efficient references that can be rationalized in a similar way as the DF projection. The indication problem is then captured using a measure of implicit allocative or mix efficiency, also interpretable as a dominance measure in price space. We consequently present a mix-adjusted DF framework for efficiency measurement in which e.g. the Zieschang (1984) procedure can be fitted.

Date: 1999-11
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Working Paper: A Shadow Price Approach to Technical Efficiency Measurement (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces9924

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