A Unifying Framework for Farrell Efficiency Measurement Coherent with Profit-maximizing Principle

Rolf Färe, Xinju He, Sungko Li and Valentin Zelenyuk
Additional contact information
Rolf Färe: Oregon State University
Xinju He: Hong Kong Baptist University
Sungko Li: Hong Kong Baptist University

No WP052016, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: Measuring profit efficiency is a challenging task. This paper synthesizes existing approaches to form a general Farrell-type model of profit efficiency. Our derivations help us unveil new and interesting relationship between existing profit efficiency measures and the Farrell-type profit efficiency measures. In turn, this helps us establishing a complete framework of studying efficiency behavior of firms, where the profit efficiency measure satisfies some desirable properties and contains Farrell output-oriented or input-oriented measures of technical efficiency and allocative efficiency as multiplicative elements. The new component, revenue efficient allocative efficiency, introduced in this paper can help firms to make decision and has not been studied in the literature before.

JEL-codes: C44 D24 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-bec and nep-eff
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:qld:uqcepa:115

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