An Overall Measure of Technical Inefficiency at the Firm and at the Industrial Level: The 'Lost Return on the Dollar' Revisited
Juan Aparicio (),
Jesus Pastor and
Subhash C. Ray
Additional contact information
Subhash C. Ray: University of Connecticut
No 2012-02, Working papers from University of Connecticut, Department of Economics
As a measure of overall technical inefficiency the Directional Distance Function (DDF) introduced by Chambers, Chung, and Färe ties the potential output expansion and input contraction together through a single parameter. By duality, the DDF is related to a measure of profit inefficiency, which is calculated as the normalized deviation between optimal and actual profit at market prices. As we show, in the most usual case, the associated normalization represents the sum of the actual revenue and the actual cost of the assessed firm. Consequently, the corresponding dual formulation of the DDF has no obvious economic interpretation. In contrast, in this paper we allow outputs to expand and inputs to contract by different proportions. This results in a modified DDF that retains most of the properties of the original DDF. The corresponding dual problem has much simpler interpretation as the lost return on outlay that can be decomposed into a technical and an allocative inefficiency component. JEL Classification: C61, D20 Key words: Data Envelopment Analysis, Directional Distance Function, Profit Inefficiency
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-eff and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://web2.uconn.edu/economics/working/2012-02.pdf Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2012-02
Access Statistics for this paper
More papers in Working papers from University of Connecticut, Department of Economics University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063. Contact information at EDIRC.
Bibliographic data for series maintained by Mark McConnel ().