Estimating output gains by means of Luenberger efficiency measures

Estimating output gains by means of Luenberger efficiency measures

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Article ID: iaor20061853
Country: Netherlands
Volume: 164
Issue: 2
Start Page Number: 535
End Page Number: 547
Publication Date: Jul 2005
Journal: European Journal of Operational Research
Authors: ,
Keywords: finance & banking
Abstract:

In this paper we propose a new measure of input allocative efficiency that we estimate using directional distance functions. Our new measure compares the gain in output if a firm reduces technical inefficiency for the direct production possibility set and the gain in output if the firm reduces technical inefficiency for the indirect production possibility set. Because the directional distance function uses a translated origin, the gain in output from an optimal reallocation of inputs can be estimated for non-radial expansions in output. We estimate efficiency for Japanese banks during 1992–1999. The gains in outputs from reducing allocative inefficiency by reallocating inputs are greater than the gains in outputs that can be attained by reducing technical inefficiency.

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