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Axiomatic foundations of efficiency measurement on data-generated technologies

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  • R. Russell
  • William Schworm

Abstract

Dmitruk and Koshevoy [1991 JET] provided a complete characterization of the class of technologies for which there exists an efficiency index satisfying the Fare-Lovell [1978 JET] axioms. The technologies implicit in the standard mathematical-programming methods of measuring efficiency, data envelopment analysis (DEA) and free-disposal-hull (FDH) analysis, belong to this class. We assess the ability of three well-known indexes, the Debreu-Farrell index, the Fare-Lovell index, and the Zieschang index, to satisfy not only the Fare-Lovell axioms but also continuity axioms (for technologies as well as input quantities), on this restricted class of technologies. Our principal conclusions are that (a) restriction to these data-based technologies adds continuity in input quantities to the properties satisfied by the Fare-Lovell and the Zieschang indexes (thus eliminating a salient advantage of the Debreu-Farrell index), but (b) none of the indexes satisfies all Fare-Lovell axioms (nor all continuity axioms) on either DEA or FDH technologies, and hence (c) trade-offs among the indexes remain. These findings provide motivation for the search for an index that does satisfy these axioms on DEA and FDH technologies.
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Suggested Citation

  • R. Russell & William Schworm, 2009. "Axiomatic foundations of efficiency measurement on data-generated technologies," Journal of Productivity Analysis, Springer, vol. 31(2), pages 77-86, April.
    • Handle: RePEc:kap:jproda:v:31:y:2009:i:2:p:77-86
    DOI: 10.1007/s11123-008-0119-1
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    1. Dmitruk, Andrei V. & Koshevoy, Gleb A., 1991. "On the existence of a technical efficiency criterion," Journal of Economic Theory, Elsevier, vol. 55(1), pages 121-144, October.
    2. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
    3. Dominique Deprins & Léopold Simar & Henry Tulkens, 2006. "Measuring Labor-Efficiency in Post Offices," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 285-309, Springer.
    4. Robert Russell, R., 1990. "Continuity of measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 51(2), pages 255-267, August.
    5. Fare, Rolf & Grosskopf, Shawna & Noh, Dong-Woon & Weber, William, 2005. "Characteristics of a polluting technology: theory and practice," Journal of Econometrics, Elsevier, vol. 126(2), pages 469-492, June.
    6. Pollitt, Michael G, 1996. "Ownership and Efficiency in Nuclear Power Production," Oxford Economic Papers, Oxford University Press, vol. 48(2), pages 342-360, April.
    7. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
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    9. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, vol. 92(3), pages 527-548, June.
    10. Henry Tulkens, 2006. "On FDH Efficiency Analysis: Some Methodological Issues and Applications to Retail Banking, Courts and Urban Transit," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 311-342, Springer.
    11. Daniel J. Henderson & R. Robert Russell, 2005. "Human Capital And Convergence: A Production-Frontier Approach ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1167-1205, November.
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    More about this item

    Keywords

    Technical efficiency indexes; Technical efficiency axioms; C43; C61; D24;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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