Lecture 23-2005 - Measuring Technical Efficiency Lecture...

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Unformatted text preview: Measuring Technical Efficiency Lecture XIV Basic Concepts of Production Efficiency Lovell, C. A. Knox. Production Frontiers and Productive Efficiency. In Harold O. Fried, C. A. Knox Lovell and Shelton S. Schmitz (eds.) The Measurement of Productive Efficiency (New York: Oxford University Press, 1993): 3-67. The most basic concept of the production function is that they represent some kind of frontier. For example, in our discussion of Diewert, we defined the production function as: Thus, y = f ( x ) was the largest output possible for a given set of inputs. ( 29 ( ) max : belongs to f x x L = Univariate Case x ( 29 f x y = Level Set 1 x 2 x ( 29 L y These formulations appear to acknowledge that some firms may be performing sub-optimally. That they could obtain a higher amount of output for the same bundle of inputs. This concept underlies the notion of technical inefficiency. However, even if the firm is operating on the frontier, we also must recognize that they may be using inputs non-optimally....
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This note was uploaded on 07/15/2011 for the course AEB 6184 taught by Professor Staff during the Fall '09 term at University of Florida.

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Lecture 23-2005 - Measuring Technical Efficiency Lecture...

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