Decompositions of Profitability Change using Cost Functions

Walter Diewert

Economics working papers from Vancouver School of Economics

Abstract: Profitability at a period of time is defined as the value of outputs produced by a production unit divided by the corresponding cost. Using some earlier work by O’Donnell, the paper provides a decomposition of profitability growth over two periods into various explanatory factors. The explanatory factors are: the change in the production unit’s cost efficiency, an index of output price growth, returns to scale, technical progress and an index of input price growth. If output prices for the production unit are not available, the paper suggests that marginal costs could be used as prices to weight outputs in each period. Using marginal or average costs to weight outputs leads to a methodology for evaluating the productivity performance of nonmarket production units that is similar to the methodology suggested in the Atkinson report.

Keywords: Measurement of output; input and productivity; nonmarket sector; cost functions; duality theory; marginal cost prices; technical progress; returns to (search for similar items in EconPapers)
JEL-codes: C43 D24 D61 E23 H44 O47 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-05-12, Revised 2010-07-13
New Economics Papers: this item is included in nep-eff
References: Add references at CitEc
Citations:

Downloads: (external link)
http://microeconomics.ca/erwin_diewert/dp1007.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable (http://microeconomics.ca/erwin_diewert/dp1007.pdf [302 Found]--> https://match.microeconomics.ca/erwin_diewert/dp1007.pdf)

Related works:
Journal Article: Decompositions of profitability change using cost functions (2014)
Working Paper: Decompositions of Profitability Change using Cost Functions (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ubc:bricol:erwin_diewert-2010-16

Access Statistics for this paper

More papers in Economics working papers from Vancouver School of Economics
Bibliographic data for series maintained by Maureen Chin ().