From efficiency measurement to efficiency improvement: The choice of a relevant benchmark

Abstract This article deals with efficiency improvement and how to identify appropriate benchmarks for inefficient firms to imitate. We argue that the most relevant benchmark is the most similar efficient firm. Having interpreted similarity in terms of input endowments, the problem reduces to find the closest reference firm on the efficient subset of the isoquant. To such an end, we introduce the concept of input-specific contractions. This concept allows to find the shortest path to the efficient subset. This information can be used to advise inefficient firms about which efficient firm to visit in order to detect its mistakes and to learn better managerial practices.