The Measurement of Productive Efficiency: Techniques and Applications

The Measurement of Productive Efficiency: Techniques and Applications

The Measurement of Productive Efficiency: Techniques and Applications

The Measurement of Productive Efficiency: Techniques and Applications

Synopsis

This work focuses on measuring and explaining producer performance. The authors view performance as a function of the state of technology and economic efficiency, with the former defining a frontier relation between inputs and outputs; the former incorporating waste and misallocation relative to this frontier. They show that insights can be gained by allowing for the possibility of a divergence between the economic objective and actual performance, and by associating this inefficiency with causal variables subject to managerial or policy influence. Derived from a series of lectures held on techniques and applications of the three approaches to the construction of production frontiers and measure of efficiency, this work will be an essential reference to scholars of a variety of disciplines who are involved with quantitative methods or policy.

Excerpt

In this book, we are concerned with measuring and explaining producer performance. We view performance as a function of the state of technology and economic efficiency. the former defines a frontier relation between inputs and outputs; the latter incorporates waste and misallocation relative to this frontier. Improvements in firm performance can occur through both technology and efficiency avenues.

The measurement of performance is tied to the economic objective of the producing unit. We allow the producer to pursue any of a wide variety of objectives, subject to any of a similarly wide variety of constraints. This enables us to study performance of private or public producers of goods and services at all levels of aggregation from individual plants to national economies. Moreover, performance can be measured with a variety of econometric and mathematical programming techniques as well.

Assuming that high levels of economic efficiency and productivity, and high rates of productivity growth, are desirable goals, then it is important to define and measure efficiency and productivity in ways that respect economic theory and provide useful information to managers and policy makers. Although much of traditional analysis studies productivity under the assumption that all producers are efficient, in our view there exists far too much evidence to the contrary. By ignoring inefficiency, the conventional framework is misspecified and estimates of productivity are contaminated with variation in efficiency. We believe that important insights can be gained by allowing for the possibility of a divergence between the economic objective and actual performance, and by associating this economic inefficiency with causal variables that might be subject to managerial or policy influence. This new paradigm leads to a richer understanding of the sources of improvements in producer performance.

The origins of this book date back to late 1989, when Hal and Shelton asked Knox, then basking in the warm Adelaide summer sun, to assist in the organization of a series of workshops on efficiency and productivity, to be held at Union College in Schenectady, N.Y. the workshops were generously funded by the New Liberal Arts Program of the Alfred P. Sloan Foundation. the objective was to encourage faculty to introduce quantitative methods into undergraduate courses on public policy and technology.

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