New Directions Efficiency and Productivity

The key unifying theme in this book is "new directions". The work covers the new directions in which we are currently working in the general efficiency and productivity arena. The unifying conceptual tool is the directional distance function, which is new. We do keep our "traditional" general approach -namely we start with axiomatic production theory and exploit the duality to drive our "new" results. The directional distance function includes traditional distance functions and efficiency measures as special cases providing a unifying framework for existing productivity and efficiency measures. As a generalisation of the traditional distance functions, it turns out to be a dual to the profit function, opening a range of new tools for empirical and theoretical research. It also provides enough additional flexibility to open up new areas in productivity and efficiency analysis such as environmental and aggregation issues. We use directional distance functions to model and measure performance when there is joint production of good (desirable) and bad (undesirable) outputs. The traditional output distance function would typically seek to expand the vector of both types of outputs, rather than crediting firms for reducing the undesirable outputs. Although the directional distance function has an additive rather than multiplicative structure it is also a ready estimate; applications are included for both nonparametric estimation via Data Envelopment analysis (DEA) and parametrically using quadratic functions. Also, results to date concerning the aggregation properties of the traditional distance functions -either over firms to measure industry efficiency or over inputs and outputs to reduce dimensionality or accommodate limited data- are generally negative. As we show, the directional distance function serves to ameliorate this problem. Overall, we conclude that the directional distance functions outperform their radical counterparts and provide very useful tools for research, as illustrated by an application to Japanese banking.Färe, Rolf is the author of 'New Directions Efficiency and Productivity' with ISBN 9781402076619 and ISBN 1402076614.