Abstract
Measuring the productive performance of economic decision-making units has assumed importance in recent years, particularly due to globalisation and the opening up of several socialist countries and developing economies. Generally, economic efficiency and its two major components — technical and allocative efficiency — are used as core measures of performance. Technical efficiency is defined as the ability and willingness of firms to produce the maximum possible output with a specified quantity of inputs, given the prevailing technology and environmental conditions. In other words, a firm is said to be technically efficient, if it is able to realise the full potential of its technology with a given set of inputs.1 Allocative efficiency is defined as the ability and willingness to use the quantity of inputs that will maximise net revenue (profit), given the current conditions of factor supply and market demand. An economic decision-making unit is said to be economically efficient when it is both technically and allocatively efficient.
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© 1999 Palgrave Macmillan, a division of Macmillan Publishers Limited
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Kalirajan, K.P., Shand, R. (1999). Stochastic Frontier Production Functions and Technical Efficiency Measurements: A Review. In: Kalirajan, K.P., Wu, Y. (eds) Productivity and Growth in Chinese Agriculture. Studies on the Chinese Economy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-27448-2_2
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