Abstract
Analysis of performance has economic production theory as its foundation. Firms employ inputs to produce output typically with an incentive to maximize profits. Firms that are technically inefficient could increase outputs and revenue with the same inputs or could decrease inputs and cost with the same outputs. Farrell (1957) provided a decomposition of inefficiency into technical and allocative parts. From an input-oriented perspective, firms that are not operating on the isoquant associated with observed production are technically inefficient. Farrell provided a comprehensive measure of technical efficiency as the equiproportional reduction of all inputs holding output at current levels. Allocative efficiency is then measured relative to the cost minimizing mix of inputs given observed input prices.
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- 1.
The measure \(F_{\rm{C}} (Y_0,X_0 )\) is referred to as an overall measure because it is composed of technical and scale inefficiency. This is discussed further in Sect. 4.
- 2.
Panzar and Willig (1977) provide a useful discussion of returns to scale in multiple output technologies.
- 3.
We refer only to the benchmark to reinforce the notion that returns to scale is not identified for technically inefficient units.
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© 2011 Springer Science+Business Media, LLC
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Ruggiero, J. (2011). Data Envelopment Analysis. In: Frontiers in Major League Baseball. Sports Economics, Management and Policy, vol 1. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-0831-5_2
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DOI: https://doi.org/10.1007/978-1-4419-0831-5_2
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