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A homothetic reference technology in Data Envelopment Analysis

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Abstract

The assumption of a homothetic production function is often maintained in production economics. In this paper we explore the possibility of maintaining homotheticity within a nonparametric DEA framework. The main contribution of this paper is to use the approach suggested by Hanoch and Rothschild in 1972 to define a homothetic reference technology. We focus on the largest subset of data points that is consistent with such a homothetic production function. We use the HR-approach to define a piecewise linear homothetic convex reference technology. We propose this reference technology with the purpose of adding structure to the flexible non-parametric BCC DEA estimator. Motivation for why such additional structure sometimes is warranted is provided. An estimation procedure derived from the BCC-model and from a maintained assumption of homotheticity is proposed. The performance of the estimator is analyzed using simulation.

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  • Olesen, Ole B., 2012. "A homothetic reference technology in Data Envelopment Analysis," Discussion Papers on Economics 14/2012, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2012_014
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    More about this item

    Keywords

    Data Envelopment Analysis (DEA); DEA based estimation of a homothetic production function; linear programming; convex hull estimation; isoquant estimation; polyhedral sets in intersection and sum form;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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