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A Shadow Price Approach to Technical Efficiency Measurement

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  • Laurens Cherchye
  • Tom Van Puyenbroeck

Abstract

The axiomatic literature on technical efficiency measurement has drawn attention to the indication problem of the Debreu-Farrell (DF) measure. We follow a shadow price approach to preserve the DF benchmark while reconciling it with the Koopmans efficiency characterization. First, we define a set of Koopmans efficient references that can be rationalized in a similar way as the DF projection. The indication problem is then captured using a measure of implicit allocative or mix efficiency, also interpretable as a dominance measure in price space. We consequently present a mix-adjusted DF framework for efficiency measurement in which e.g. the Zieschang (1984) procedure can be fitted.

Suggested Citation

  • Laurens Cherchye & Tom Van Puyenbroeck, 1999. "A Shadow Price Approach to Technical Efficiency Measurement," Public Economics Working Paper Series ces9924, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
    • Handle: RePEc:wpe:papers:ces9924
    Note: A profoundly revised version of this paper is available under the title "Technical Efficiency Evaluation: Naturally Dual;" see http://ideas.repec.org/p/wpe/papers/wptchff.html.
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    References listed on IDEAS

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    1. Ferrier, G. D. & Kerstens, K. & Vanden Eeckaut, P., 1994. "Radial and nonradial technical efficiency measures on a DEA reference technology: a comparison using US banking data," LIDAM Reprints CORE 1156, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

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