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Numeraire choice, shadow profit, and inefficiency measurement

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  • Chambers, Robert G.

Abstract

We study a programming approach to inducing inefficiency measures for convex technologies. It takes the technology and the numeraire as given and uses variational arguments to isolate shadow prices that make a decision maker’s observed behavior as efficient as possible. The focus is on how the numeraire determines the element of the efficient frontier to which a decision maker’s performance is compared, the resulting technical inefficiency measure, and whether that measure offers a cardinal representation of the technology. We use the results to study an inefficiency measure, the polyhedral measure, that generalizes an array of existing measures.

Suggested Citation

  • Chambers, Robert G., 2024. "Numeraire choice, shadow profit, and inefficiency measurement," European Journal of Operational Research, Elsevier, vol. 319(2), pages 658-668.
    • Handle: RePEc:eee:ejores:v:319:y:2024:i:2:p:658-668
    DOI: 10.1016/j.ejor.2024.06.041
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