Measures of technical efficiency (Q761332): Difference between revisions

\textit{R. Färe} and \textit{C. A. K. Lovell} [ibid. 19, 150-162 (1978; Zbl 0398.90012)] suggest four properties that a measure of technical efficiency should satisfy; the commonly employed Debreu-Farrell measure fails three of them. Necessary and sufficient conditions for a measure to satisfy the four conditions are provided and recently proposed measures are analyzed in the light of this result. Also, it is argued that the Debreu-Farrell measure has several desirable properties when one takes account of (1) (perhaps unknown) market prices and the relationship between technical and economic efficiency and (2) its characterization as a measure of economic efficiency using the shadow prices implicit in the production technology.