Extensions to Economic Analysis

Abstract

Abstract

This chapter introduces frontier analysis techniques, including data envelope analysis and stochastic frontier analysis. It shows that these can be used by government and individual agencies to supplement traditional economic analysis techniques. It explains how these techniques are useful in calculating a relative efficiency score for individual production units (or DMUs) within an organisation by measuring the deviation of the units from the firm’s or agency’s efficiency frontier. Moreover, it highlights how such methods can help to identify the mechanisms and the underlying contexts that underpin the efficiency of what may be considered the benchmark (i.e., the most efficient).