Profit Function Based Indices and Indicators
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The basic assumption in this chapter is the classical one, namely that the firm is a competitive profit maximizer. Accordingly, the appropriate representation of the technology is provided by the profit function. Based on this function we can define a simultaneous input and output price index, and an index of technical change. Section 7.1 then concludes with deriving some nonparametric approximations for these indices. In section 7.2 we relax some of the assumptions made in the previous section. Using the recently developed concept of a directional distance function it appears possible to define primal and dual productivity indicators in difference form. Their nonparametric approximations appear to coincide.
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