How to properly decompose economic efficiency using technical and allocative criteria with non-homothetic DEA technologies
Entity
UAM. Departamento de Análisis Económico, Teoría Económica e Historia EconómicaPublisher
UAM. Departamento de Análisis Económico, Teoría Económica e Historia EconómicaDate
2013Serie/Num.
Economic Analysis Working Paper Series. 11/2013ISSN
1885-6888Subjects
Data envelopment analysis; Overall efficiency; Technical efficiency; Allocative efficiency; Homotheticity; EconomíaAbstract
We discuss how to properly decompose economic efficiency when the underlying
technology is non-homothetic using alternative allocative and technical efficiency
criteria. We first show that only under the production of one output and assuming the
particular case of constant returns to scale homotheticity, we may claim that the
standard radial models correctly measure pure technical efficiency. Otherwise, when
non-homotheticity is assumed, we then show that these traditional estimations would
measure an undetermined mix of technical and allocative efficiency. To restore a
consistent measure of technical efficiency in the non-homothetic case we introduce a
new methodology that takes as reference for the economic efficiency decomposition
the preservation of the allocative efficiency of firms producing in the interior of the
technology. This builds upon the so-called reversed approach recently introduced by
Bogetoft et al. (2006) that allows estimating allocative efficiency without presuming that
technical efficiency has been already accomplished. We illustrate our methodology
within the Data Envelopment Analysis framework adopting the most simple nonhomothetic
BCC model and a numerical example. We show that there are significant
differences in the allocative and technical efficiency scores depending on the approach
Files in this item
Google Scholar:Aparicio, Juan
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Pastor, Jesús T.
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Zofío Prieto, José Luis
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