Introduction

Abstract

This book is concerned with measuring the performance of firms, which convert inputs into outputs. An example of a firm is a shirt factory which uses materials, labour and capital (inputs) to produce shirts (output). The performance of this factory can be defined in many ways. A natural measure of performance is a productivity ratio: the ratio of outputs to inputs, where larger values of this ratio are associated with better performance. Performance is a relative concept. For example, the performance of the factory in 1996 could be measured relative to its 1995 performance or it could be measured relative to the performance of another factory in 1996, etc.