The Measurement of Productive Efficiency and Productivity Growth

The Measurement of Productive Efficiency and Productivity Growth

The Measurement of Productive Efficiency and Productivity Growth

The Measurement of Productive Efficiency and Productivity Growth

Synopsis

When Harold Fried, et al. published The Measurement of Productive Efficiency: Techniques and Applications with OUP in 1993, the book received a great deal of professional interest for its accessible treatment of the rapidly growing field of efficiency and productivity analysis. The first several chapters, providing the background, motivation, and theoretical foundations for this topic, were the most widely recognized. In this tight, direct update, these same editors have compiled over ten years of the most recent research in this changing field, and expanded on those seminal chapters. The book will guide readers from the basic models to the latest, cutting-edge extensions, and will be reinforced by references to classic and current theoretical and applied research. It is intended for professors and graduate students in a variety of fields, ranging from economics to agricultural economics, business administration, management science, and public administration. It should also appeal to public servants and policy makers engaged in business performance analysis or regulation.

Excerpt

Some individuals are more productive than others; some small businesses find and exploit a lucrative market niche that others miss; some large corporations are more profitable than others; and some public agencies provide more efficient service than others. In each case, performance, both absolute and relative to the competition, can improve through time or lag behind. Success in the short run can be associated with failure in the long run; failure in the short run can lead to death, or it may be the precursor of success in the long run.

What do we mean by business performance? Surely it is multidimensional, but for most producers, the ultimate yardstick is profit. However, we take the view that profit, or any other financial indicator, is a reflection, rather than a measure, of business performance. Performance itself means doing the right things right. This involves solving the purely technical problem of avoiding waste, by producing maximum outputs from available inputs or by using minimum inputs required to produce desired outputs. It also involves solving the allocative problems of using inputs in the right proportion and producing outputs in the right proportion, where “right” generally respects prevailing input prices and output prices. Technical and allocative efficiency in the use of inputs leads to cost efficiency. Technical and allocative efficiency in the production of outputs leads to revenue efficiency. Overall technical and allocative efficiency leads to profit efficiency, the generation of maximum possible profit under the circumstances.

However, circumstances change through time, and so changes in business performance involve changes in technical and allocative efficiency. But they also involve changes in productivity arising from development or adoption of . . .

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