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Partially Convex Production Technology and Efficiency Measurement.

Partially Convex Production Technology and Efficiency Measurement.

Authors :
Li, Sung Ko
Tsang, Chun Kei
Lee, Shu Kam
Source :
Journal of Productivity Analysis; Dec2024, Vol. 62 Issue 3, p303-320, 18p
Publication Year :
2024

Abstract

Economists tend to believe that production technology should exhibit increasing returns to scale first and then constant and finally decreasing returns to scale, called regular variable returns to scale (RVRS) in this paper. Further, a special pattern of RVRS production technology when there is only one output is the production function that has an S-shaped curve along any ray of inputs from the origin. In the literature on efficiency analysis, the most frequently used empirical technology is the variable returns to scale (VRS) production technology. Although it exhibits RVRS, it is unable to model nonconvex production technologies, such as the S-shaped production function. Recently, a new empirical production technology has been introduced to capture RVRS with partial convexity. This paper explores its relationship with efficiency measurement. Furthermore, a novel empirical production technology that can better capture the characteristics of the S-shaped production function is proposed. These two new production technologies provide better alternatives to the commonly used Free Disposal Hull (FDH) production technology in non-convex production with RVRS. Our new production technology is illustrated using US manufacturing industry data. If one believes that the production technology is partially convex and exhibits RVRS, it is found that the conventional VRS production technology overestimates the technical inefficiency of small production units under this belief. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
0895562X
Volume :
62
Issue :
3
Database :
Complementary Index
Journal :
Journal of Productivity Analysis
Publication Type :
Academic Journal
Accession number :
181064397
Full Text :
https://doi.org/10.1007/s11123-023-00716-w