Efficiency Analysis in Production

In the current microeconomic theory of production, characterizing efficiency, estimating it and analyzing its policy implications have posed new challenges for the economists. These challenges are at several levels: (1) a nonparametric class of approaches has been proposed against production functions or production frontiers which are usually specified in parametric forms e.g., Cobb-Douglas functions, (2) the econometric estimation of efficiency in nonparametric contexts raises new issues, (3) the distribution of input-output data may have significant impact on the measurement and estimation of efficiency in a nonparametric context, and (4) finally, the method of aggregation employed in generating efficiency measures at the industry level is more important in dynamic contexts than so far recognized. Our objective in this chapter is to present a broad overview of the recent developments in the nonparametric approach to measuring and estimating efficiency through production frontiers.

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