Productivity and Efficiency Analysis by Christopher J. O’Donnell

Author:Christopher J. O’Donnell
Language: eng
Format: epub
ISBN: 9789811329845
Publisher: Springer Singapore

(5.35)

where is the maximum TFP possible when using to produce a scalar multiple of in period t in a production environment characterised by . Equations (5.1), (5.31) and (5.35) imply that

(5.36)

This equation says that OSE is the component of TSE that remains after accounting for OTE. If there is no environmental change, then the measure of OSE defined by (5.35) is equivalent to the output-oriented measure of scale efficiency defined by Balk (1998, Eq. 2.42) . If the production frontier exhibits CRS, then it takes the value one.

To illustrate, reconsider the measures of OTE and TSE depicted in Figs. 5.2 and 5.21. Relevant parts of those figures are now reproduced in Fig. 5.24. Recall from Figs. 5.2 and 5.21 that the OTE and TSE of the manager of firm A are and . Consequently, the OSE of the manager is (i.e., an index that compares the TFP at point C with the TFP at point D).

Fig. 5.24Output-oriented technical and scale inefficiency. The gap between the rays through A and C is due to technical inefficiency. The gap between the rays through C and D is due to scale inefficiency

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