The Decomposition of Frontier Cost Function Deviations into Measures of Technical, Allocative and Overall Productive Efficiency

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Date

Dec. 31, 1981

Authors

Raymond J. Kopp and W. Erwin Diewert

Publication

Journal Article in Journal of Econometrics

Reading time

1 minute

Abstract

This paper presents a method for decomposing the deviations from a full frontier cost function into Farrell (1957) measures of technical and allocative efficiency. The method draws heavily on duality theory and requires no direct knowledge of the primal production frontier specification or its parameters. Thus, the method is applicable to a broad class of cost functions, including flexible functions such as the translog, which do not possess analytically derivable underlying production functions. The method easily generalizes to joint output production technologies where the decomposition of deviations from frontier profit functions would provide measures of technical, allocative, output mix and scale efficiency.

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Authors

Raymond J. Kopp

Senior Fellow

Raymond J. Kopp is a senior fellow at RFF. During his career Kopp has specialized in the analysis of environmental and natural resource issues with a focus on Federal regulatory activity.

W. Erwin Diewert

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