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On Farrell Measures of Technical Efficiency

Published online by Cambridge University Press:  17 August 2016

Dominique Deprins  and
Léopold Simar
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Extract

In this paper we consider the problem of evaluating the performance of production units in terms of their technical efficiency. Several attempts have been made to solve this problem and a number of different measures appear in the economic literature : the technical efficiency, here used, is defined to be the ability of a productive organization to operate close to, or on the boundary of its production set; the problem will be analyzed only in terms of physical input and output quantities, without any references to prices or costs structures. This concept of technical efficiency is inspired from the work by Koopmans (1951); it received a first empirical application in Farrel (1957). An interesting survey on this topic may be formed in Førsund, Lovell and Schmidt (1980). Measuring efficiency of this kind for any data set requires first to determine what the boundary of the unknown production set can be; and then, to measure the distance between any observed point and this boundary. In this paper, we concentrate on the Farrel method of estimating technical efficiencies. There the production set is typically a convex polyhedron generated from the observed data with small modifications in view of the assumptions on disposabilities of input and/or on disposibilities of outputs. The distances from the efficient frontier are then measured in a radial sense, i.e. with fixed technology.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 49 , Issue 2 , June 1983 , pp. 123 - 137
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1983 

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Footnotes

(*)

SMASH, Facultés Universitaires Saint-Louis, Brussel, Belgium and CORE, Université Catholique de Louvain, Louvain-la-Neuve, Belgium.

Comments of J.J. Gabszewicz and L. Phlips on a previous version are gratefully acknowledged. Discussions on the subject with H. Tulkens and E. Loute were also helpful.

References

REFERENCES

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