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Inefficiency

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Abstract

We introduce an ordinal model of efficiency measurement. Our primitive is a notion of efficiency that is comparative, but not cardinal or absolute. In this framework, we postulate axioms that we believe an ordinal efficiency measure should satisfy. Primary among these are choice consistency and planning consistency, which guide the measurement of efficiency in a firm with access to multiple technologies. Other axioms include symmetry, which states that the names of commodities do not matter, scale-invariance, which says that units of measurement of commodities does not matter, and strong monotonicity, which states that efficiency should decrease if the inputs and outputs remain static when the technology becomes unambiguously more efficient. These axioms characterize a unique ordinal efficiency measure which is represented by the coefficient of resource utilization. By replacing symmetry (the weakest of our axioms) with a very mild continuity condition, we obtain a family of path-based measures.

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  • Chambers, Christopher P. & Miller, Alan D., "undated". "Inefficiency," Working Papers WP2011/14, University of Haifa, Department of Economics, revised 30 Nov 2011.
    • Handle: RePEc:haf:huedwp:wp201114
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    1. 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.
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    6. Miller, Alan D., 2008. "Group identification," Games and Economic Behavior, Elsevier, vol. 63(1), pages 188-202, May.
    7. R. Russell & William Schworm, 2011. "Properties of inefficiency indexes on 〈input, output〉 space," Journal of Productivity Analysis, Springer, vol. 36(2), pages 143-156, October.
    8. Aly, Hassan Y, 1990. "Technical, Scale, and Allocative Efficiencies in U.S. Banking: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 211-218, May.
    9. Nishimizu, Mieko & Page, John M, Jr, 1982. "Total Factor Productivity Growth, Technological Progress and Technical Efficiency Change: Dimensions of Productivity Change in Yugoslavia, 1965-78," Economic Journal, Royal Economic Society, vol. 92(368), pages 920-936, December.
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    More about this item

    Keywords

    Efficiency Measurement; Coefficient of Resource Utilization; Ordinal; Choice Consistency; Planning Consistency; Path-based;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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