One-sided elasticities and technical efficiency in multi-output production: A theoretical framework

One-sided elasticities and technical efficiency in multi-output production: A theoretical framework

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Article ID: iaor20063231
Country: Netherlands
Volume: 168
Issue: 2
Start Page Number: 425
End Page Number: 449
Publication Date: Jan 2006
Journal: European Journal of Operational Research
Authors: ,
Keywords: statistics: data envelopment analysis
Abstract:

One of the concepts that have sparked considerable interest in the theory of production and efficiency is that of returns to scale (RTS). Economics researchers typically define RTS using the notion of elasticity. Considerable research activity on RTS has also been observed by management science researchers, who utilize the methodology of Data Envelopment Analysis (DEA) to gain insights on RTS. In this paper, we present a theoretical framework that integrates existing economics and management science literature on RTS, and provides a solid foundation for research work in this area. Our framework defines, discusses, and proposes an approach to measure input- and output-oriented elasticities, and one-sided RTS. We demonstrate how the work done in DEA is a special case of our framework, and discuss the conditions under which the resulting two left-hand, and the two right-hand elasticities can be equal. Future research directions are also discussed.

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