Authors
Rolf Färe, Shawna Grosskopf
Publication date
2000/3
Journal
Journal of productivity analysis
Volume
13
Issue
2
Pages
93-103
Publisher
Kluwer Academic Publishers
Description
In 1957 Farrell demonstrated how cost inefficiency could be decomposed into two mutually exclusive and exhaustive components: technical and allocative inefficiency. This result is consequence of the fact that—as shown by Shephard—the cost function and the input distance function (the reciprocal of Farrell's technical efficiency measure) are ‘dual’ to each other. Similarly, the revenue function and the output distance function are dual providing the basis for the decomposition of revenue inefficiency into technical and allocative components (see for example, Färe, Grosskopf and Lovell (1994)). Here we extend those results to include the directional distance function and its dual, the profit function. This provides the basis for defining and decomposing profit efficiency. As we show, the output and input distance functions (reciprocals of Farrell efficiency measures) are special cases of the directional distance …
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Scholar articles
R Färe, S Grosskopf - Journal of productivity analysis, 2000