Resolving a strange case of efficiency

Resolving a strange case of efficiency

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Article ID: iaor20072630
Country: United Kingdom
Volume: 57
Issue: 11
Start Page Number: 1366
End Page Number: 1368
Publication Date: Nov 2006
Journal: Journal of the Operational Research Society
Authors: ,
Keywords: programming: linear
Abstract:

In a recent paper in the Journal of the Operational Research Society, Tone proposes an alternative to the Farrell cost efficiency index to avoid the ‘strange case’ problem in which firms with identical inputs and outputs but with input prices differing by some factor (e.g., one has input prices twice another) will have the same Farrell cost efficiency. We provide an alternative cost efficiency indicator that avoids this problem, allows for decomposition into technical and allocative efficiency, and is easily estimated using DEA type models.

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