The Measurement of Efficiency Relative to a Frontier Production Function

Abstract

A method is presented for estimating a frontier production function allowing economies and diseconomies of scale using linear programming techniques. The general applicability of this function is illustrated by considering the neutral and nonneutral cases. Indexes of technical, price, and economic efficiency of production of observations of equal scale are introduced. Three equivalent efficiency indexes are offered which measure the efficiency of altemative scale activities. Utilization of the efficiency indexes in determining the nature of the production function, causes of observed inefficiency, and the degree and nature of technological advance are discussed.

The tale of two research communities: The diffusion of research on productive efficiency

“…Here the constant returns to scale assumption used in Farrell (1957) was generalised within a single output framework, and a linear programming (LP) format adopted, following the advice by Hoffman in the Discussion (1957). A mainframe programme was developed by Boles (1967Boles ( , 1971) and used by Seitz (1970Seitz ( , 1971). …”

Sociological and economic factors related to managerial success

“…The procedure used to measure efficiency in this study was first presented by Farrell (1957) and extended by Farrell and Fieldhouse (1962), Bressler (1966), and Seitz (1970).…”

“…Note that the modification to the envelope technique reported by Seitz and discussed above will accomplish this. Seitz (1970) suggests three additional categories of variables that will affect a firm's efficiency. These are a) thê manayêr's pcrforrisncs, b) cnvircnnisntal characteristics, and c) characteristics internal to the firm itself.…”

“…A possible way around this multi output problem, and the one opted for in this study, is to consider that service to patron members is the primary reason for the cooperative's existence. This ^^Work on the multi output case is in development (see Seitz, 1970, p. 511). However, publication of an empirical study does not exist to this writer's knowledge.…”

“…Figure 2. Hypothetical example of the "pessimistic" estimate of the efficient unit isoquant -two inputs bility, Seitz (1970) adds a third scale dimension to the basic diagram (see Figure 3). The end result of this is to use the envelope technique as already discussed but restricting analy sis to firms of (relatively) homogeneous scale.…”