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Benchmarking Economic Efficiency

Technical and Allocative Fundamentals

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  • Provides insights into the Data Envelopment Analysis models and optimization methods

  • Presents theory and practice of economic efficiency analysis within the multiplicative and additive approaches

  • Includes software package programmed in the Julia language

Part of the book series: International Series in Operations Research & Management Science (ISOR, volume 315)

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About this book

This book unifies and extends the definition and measurement of economic efficiency and its use as a real-life benchmarking technique for actual organizations. Analytically, the book relies on the economic theory of duality as guiding framework. Empirically, it shows how the alternative models can be implemented by way of Data Envelopment Analysis. An accompanying software programmed in the open-source Julia language is used to solve the models. The package is a self-contained set of functions that can be used for individual learning and instruction. The source code, associated documentation, and replication notebooks are available online. 

The book discusses the concept of economic efficiency at the firm level, comparing observed to optimal economic performance, and its decomposition according to technical and allocative criteria. Depending on the underlying technical efficiency measure, economic efficiency can be decomposed multiplicatively or additively. Part I of the book deals with the classic multiplicative approach that decomposes cost and revenue efficiency based on radial distance functions. Subsequently, the book examines how these partial approaches can be expanded to the notion of profitability efficiency, considering both the input and output dimensions of the firm, and relying on the generalized distance function for the measurement of technical efficiency. 

Part II is devoted to the recent additive framework related to the decomposition of economic inefficiency defined in terms of cost, revenue, and profit. The book presents economic models for the Russell and enhanced graph Russell measures, the weighted additive distance function, the directional distance function, the modified directional distance function, and the Hölder distance function. Each model is presented in a separate chapter. New approaches that qualify and generalize previous results are also introduced in the last chapters, including the reverse directional distance function and the general direct approach. 

The book concludes by highlighting the importance of benchmarking economic efficiency for all business stakeholders and recalling the main conclusions obtained from many years of research on this topic. The book offers different alternatives to measure economic efficiency based on a set of desirable properties and advises on the choice of specific economic efficiency models.

Keywords

  • Economic Efficiency
  • Duality Theory
  • Shephard’s Distance Functions
  • Graph Distance Functions
  • Profit Efficiency
  • Data Envelopment Analysis (DEA)
  • Loss Distance Function
  • Profitability Change
  • Luenberger Indicators

Authors and Affiliations

  • Center of Operations Research (CIO), Universidad Miguel Hernandez de Elche, Elche, Spain

    Jesús T. Pastor, Juan Aparicio

  • Department of Economics, Universidad Autónoma de Madrid, Madrid, Spain

    José L. Zofío

About the authors

Jesus T. Pastor is a professor of Statistics and Operations Research at the Universidad Miguel Hernandez of Elche, Spain. He has been visiting researcher at the Universities of Georgia (USA), Toronto (Canada), Queensland (Australia) and Warwick (UK). Prof. Pastor's research fields include location science, banking and, for the last twenty-five years, efficiency analysis.

Juan Aparicio is a professor Statistics, Mathematics and Information Technology at the Miguel Hernandez University of Elche (UMH), Spain, and the head of the Center of Operations Research. His research interest includes efficiency and productivity analysis combined with Machine Learning and Data Science. He is associate editor of Omega; The International Journal of Management Science, Journal of Productivity Analysis, Mathematics and Advances in Operations Research.

José Luis Zofío is a professor of Economics at the Universidad Autónoma de Madrid and former Chair of the Department of Economics. He is also Visiting Professor at Erasmus University and Wageningen University and Research, and Visiting Fellow to the Erasmus Research Institute of Management ERIM, where he collaborates with several academics from the Rotterdam School of Management. His research interests are related to measurement theory in economics, in particular the use of index numbers for efficiency and productivity analysis, as well as spatial economics and trade theory.

Bibliographic Information

Buying options

Hardcover Book
USD 159.99
Price excludes VAT (USA)
This title has not yet been released. You will be able to pre-order it soon.