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On aggregation of technical and revenue efficiency measures

Author

Listed:
  • Mehmet A. Begen

    (Western University)

  • Fredrik Ødegaard

    (Western University)

  • Jafar Sadeghi

    (Western University)

Abstract

We discuss and propose new results regarding combined production efficiencies of an aggregate group, such as industry or region. Based on the production economic notion of aggregate technology, we present an algebraic representation of the aggregation output set, and use this to derive a new decomposition of the aggregation unit’s technical efficiency, e.g. a group’s technical efficiency. Our novel decomposition can identify more clearly the inefficiency due to the underlying units and the inefficiency due to the aggregation. For the special single output case, the proposed aggregation measure is consistent with the extant literature, and identical to Farrell’s measure of structural efficiency of a group. However, for the general multiple outputs case we show that there is a gap between the proposed measure and the extant literature. We illustrate the formal results with a numerical example based on a dataset from literature.

Suggested Citation

  • Mehmet A. Begen & Fredrik Ødegaard & Jafar Sadeghi, 2024. "On aggregation of technical and revenue efficiency measures," Journal of Productivity Analysis, Springer, vol. 62(3), pages 335-350, December.
    • Handle: RePEc:kap:jproda:v:62:y:2024:i:3:d:10.1007_s11123-023-00710-2
    DOI: 10.1007/s11123-023-00710-2
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