Technical Efficiency Evaluation: Naturally Dual!

Abstract

We provide a dual perspective on technical efficiency evaluation, in two respects. First, we build on the price assumptions implicitly associated with the notion of technical efficiency in a general equilibrium framework to characterize a set of appropriate references to be used in the technical efficiency evaluation of an input-output vector. Some existing evaluation methods always select an element of this set, but other methods fail to do so. Second, the above framework leads us to assert that a well-grounded measure of technical efficiency is naturally decomposable. One part refers to technical efficiency as captured by the classical Debreu-Farrell measure. The other part refers to technical efficiency resulting from the “implicit allocative efficiency” or “mix efficiency” of the evaluated vector. We present both a quantity-based distance measure and its price-based equivalent to evaluate this complementary dimension of technical efficiency. This generalized perspective encompasses the standard Debreu-Farrell framework for technical efficiency evaluation, and makes it fully consistent with the well-established Koopmans efficiency notion.