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Technical and Economic Efficiency Measures Under Short Run Profit Maximizing Behavior

Published online by Cambridge University Press:  17 August 2016

Laurens Cherchye ,
Timo Kuosmanen  and
Hervé Leleu
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Summary

The duality between measures of economic and technical efficiency has been extensively studied in the productive efficiency analysis. This duality ensures a meaningful interpretation of technical efficiency as economic efficiency evaluated at the most favorable shadow prices. This paper concentrates on economic efficiency as short run profit efficiency. We first argue that a modified version of Varian's goodness-of-fit measure provides an appropriate economic efficiency measure in that context. Next, we show that a variant of the McFadden gauge function provides a natural dual efficiency measure for this short run profit efficiency measure. In particular, we establish two attractive properties of that technical efficiency measure: (i) it can be interpreted as Varian's profit efficiency measure evaluated at shadow prices; (ii) it provides an upper bound for profit efficiency

Résumé

Résumé

Les relations de dualité entre les mesures d'efficacité technique et économique ont été largement étudiées dans la littérature sur la productivité. Cette dualité fournit une interprétation intéressante des mesures d'efficacité technique comme des mesures d'efficacité profit évaluées par rapport à un système de prix implicites le plus favorable possible. Cet article considère l'efficacité profit de court terme comme mesure d'efficacité économique. Nous montrons, dans un premier temps, qu'une version modifiée d'une mesure proposée par Varían fournit l'indicateur approprié de l'efficacité économique dans ce cadre. Nous montrons ensuite qu'une variante de la fonction de Gauge de McFadden fournit une mesure duale du profit de court terme. Nous établissons notamment deux propriétés attractives de cette nouvelle mesure : (i) elle peut être interprétée comme une mesure de profitabilité à la Varían évaluée par rapport à un système de prix implicites ; (ii) elle fournit une borne supérieure pour la mesure d'efficacité profit.

Keywords

efficacitéprofitefficacité techniquefonctions-distance technologiquesD2D24Profit EfficiencyTechnical EfficiencyTechnology Distance FunctionsD2D24
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 76 , Issue 2 , 2010 , pp. 163 - 173
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2010 

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Footnotes

*

University of Leuven, Campus Kortrijk and Center for Economic Studies; Fund for Scientific Research - Flanders (FWO-Vlaanderen). E. Sabbelaan 53, B-8500 Kortrijk, Belgium. E-mail: laurens.cherchye@kulak.ac.be.

**

Economic Research Unit, MTT Agrifood research Finland, Luutnantintie 13,00410 Helsinki, Finland. E-mail: Timo.Kuosmanen@mtt.fi. Helsinki School of Economics, P.O. Box 1210, 00101 Helsinki, Finland. E-mail: Timo.Kuosmanen@hse.fi.

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