The Directional Profit Efficiency Measure: On Why Profit Inefficiency is either Technical or Allocative

The directional distance function has been introduced in the efficiency literature with the intention of relaxing the fixed orientations represented by its classical input and output counterparts. However, the criteria underlying the choice of its associated directional vector are numerous. When market prices are observed and firms have a profit maximizing behavior, it seems natural to choose as directional vector that projecting inefficient firms towards profit maximizing benchmarks. Based on that choice of directional vector, we introduce the profit efficiency measure and show that, in this general setting, profit inefficiency can be categorized as either technical -for firms situating in the interior of the technology- or allocative -for firms lying on the frontier. We implement and illustrate the analytical model by way of Data Envelopment Analysis techniques, where the profit maximizing benchmark may not be unique, and introduce the necessary optimizing program for profit inefficiency measurement.Directional Distance Function; Profit Efficiency; Technical Efficiency; Allocative Efficiency; Data Envelopment Analysis.

Direct Targeting of Efficient DMUs for Benchmarking

We propose a two-stage procedure for finding realistic benchmarks for nonparametric efficiency analysis. On the first stage the efficient DMUs are figured out by a free disposal hull approach. These benchmarks are directly targeted by directional distance functions and the extent of inefficiency is measured along the direction towards an existing DMU. Two variants for finding the closest or the furthest benchmark are proposed. With this approach there is no need to use linear combinations of existing DMUs as benchmarks which may not be achievable in reality and also no need to accept slacks which are not reflected by the efficiency measure

DEA target setting using lexicographic and endogenous directional distance function approaches

Belarmino Adenso Díaz Fernández es el investigador principal del proyecto "Análisis y diseño de redes logísticas eficientes, robustas y sostenibles

Carbon emissions intensity reduction target for China's power industry: An efficiency and productivity perspective

© 2018 Elsevier Ltd This paper proposes a scenario analysis to address whether the national and provincial CO2 emissions intensity reduction target during 2016–2020 would be achievable for China's power industry with the identification of change on carbon productivity. This productivity indicator is further decomposed to investigate contributions of different sources to productivity growth when there exists technological heterogeneity. Evaluation results show that even if all electricity-generating units in each region were able to adopt the best practice, the nationwide 18% intensity reduction target is not feasible through improving technical efficiency or upgrading technology on electricity generation and carbon abatement in a short or medium term. The existence of regional technological heterogeneity in power generation and associated CO2 emissions reduction processes implies the necessity of more differentiated regulations and policies for emission reduction across China's regions and inter-regional technology transfer. The emerging national emission trading scheme could easy some challenges in formulating emission policy for heterogeneous regions

How to properly decompose economic efficiency using technical and allocative criteria with non-homothetic DEA technologies

We discuss how to properly decompose economic efficiency when the underlying technology is non-homothetic using alternative allocative and technical efficiency criteria. We first show that only under the production of one output and assuming the particular case of constant returns to scale homotheticity, we may claim that the standard radial models correctly measure pure technical efficiency. Otherwise, when non-homotheticity is assumed, we then show that these traditional estimations would measure an undetermined mix of technical and allocative efficiency. To restore a consistent measure of technical efficiency in the non-homothetic case we introduce a new methodology that takes as reference for the economic efficiency decomposition the preservation of the allocative efficiency of firms producing in the interior of the technology. This builds upon the so-called reversed approach recently introduced by Bogetoft et al. (2006) that allows estimating allocative efficiency without presuming that technical efficiency has been already accomplished. We illustrate our methodology within the Data Envelopment Analysis framework adopting the most simple nonhomothetic BCC model and a numerical example. We show that there are significant differences in the allocative and technical efficiency scores depending on the approac

Green Biased Technical Change in Terms of Industrial Water Resources in China’s Yangtze River Economic Belt

As a significant ecological corridor from west to east across China, the Yangtze River Economical Belt (YREB) is in great need of green development and transformation. Rather than only focusing on the overall growth of green productivity, it is important to identify whether the technical change is biased towards economic performance or green performance in promoting green productivity. By employing the biased technical change theory and Malmquist index decomposition method, we analyze the green biased technical change in terms of industrial water resources in YREB at the output side and the input side respectively. We find that the green biased technical change varies during 2006–2015 at both the input side and output side in YREB. At the input side, water-saving biased technical change is generally dominant compared to water-using biased technical change during 2006–2015, presenting the substitution effects of non-water production factors. At the output side, the economy-growth biased technical change is the main force to promote green productivity, whereas the role of water-conservation biased technical change is insufficient. The green performance at the output side needs to be strengthened compared to the economic performance in YREB. A series of water-related environmental policies introduced in China since 2008 have promoted the green biased technical change both at the input side and the output side in YREB, but the policy effects at the output side is still inadequate compared to that at the input side. The technological innovation in sewage treatment and control need to catch up with the economic growth in YREB. Our research gives insights to enable a deeper understanding of the green biased technical change in YREB and will benefit more focused policy-making of green innovation

A new slacks-based measure of Malmquist-Luenberger index in the presence of undesirable outputs

In the majority of production processes, noticeable amounts of bad byproducts or bad outputs are produced. The negative effects of the bad outputs on efficiency cannot be handled by the standard Malmquist index to measure productivity change over time. Toward this end, the Malmquist-Luenberger index (MLI) has been introduced, when undesirable outputs are present. In this paper, we introduce a Data Envelopment Analysis (DEA) model as well as an algorithm, which can successfully eliminate a common infeasibility problem encountered in MLI mixed period problems. This model incorporates the best endogenous direction amongst all other possible directions to increase desirable output and decrease the undesirable outputs at the same time. A simple example used to illustrate the new algorithm and a real application of steam power plants is used to show the applicability of the proposed model

Endogenous cap reduction in Emission Trading Systems

Since its introduction, the European Emissions Trading Scheme (EU ETS) has been struggling with an oversupply of emission allowances and a highly volatile allowance price. One reason for the price decline is technological progress and ist demand-reducing effect, which is only partially taken into account in the system. We propose a simple benchmark approach to endogenously adjust the supply of allowances to technical progress. Using a non-parametric benchmark approach, we measure the required adjustment of the allowance supply to avoid a technologyinduced price decline and to maintain the incentive to invest in low-carbon technologies

A Productivity analysis of Eastern European banking taking into account risk decomposition and environmental variables

This paper develops a new Luenberger productivity which is applied to a technology where the desirable and undesirable outputs are jointly produced and are possibly negative. The components of this Luenberger productivity index - the efficiency change and the components of the technological shift - are then decomposed into factors determined by the technology, adjusted for ‘risk and environment’, ‘risk management’ and ‘environmental effects’. The method is applied to Central and Eastern European banks operating during 1998–2003 utilising three alternative input/output methodologies (intermediation, production and profit/revenue). Additionally, the comparative analysis of the sensitivity of the productivity indices in the choice of the methodologies is undertaken using statistical and kernel density tests. It is found that the main driver of productivity change in Central and Eastern European banks is technological improvement, which, in the beginning of the analysed period, hinged on the banks’ ability to capitalise on advanced technology and successfully take into account risk and environmental factors. Whereas, in the later sampled periods, we show that one of the most important factors of technological improvement/decline is risk management. Finally, the tests employed confirm previous findings, such as Pasiouras (2008) in this journal, that different input/output methodologies produce statistically different productivity results. Indeed, we also find that external factors, such as a risk in the economy and banking production, and a ‘corruption perception’ affect the productivity of banks.Luenberger productivity index; DEA; banking; undesirable outputs; negative data.