Technical Efficiency Measurement by Data Envelopment Analysis
Figure 4 Technical and Allocative Efficiencies
Figure 5 Piecewise Linear Convex Isoquant
These efficiency measures assume the production function of the fully efficient firm is known. In prac-
tice this must be
is not the
and the efficient the sample data.
(1957) suggested piecewise-linear
the use of either (a) a non-parametric convex isoquant constructed such
that no observed point should it (refer to Figure 3), or (b) a
lie to the left or below parametric function be
fitted to the should lie to
data, again such that the left or below it.
The above input-orientated technical efficiency mea- sure addresses the question: “By how much can input quantities be proportionally reduced without chang- ing the output quantities produced?” One could alter- natively ask the question, “By how much can output quantities be proportionally expanded without altering the input quantities used?” This is an output-orientated
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