An extended Farrell technical efficiency measure (Q793630)

When the efficient subsets and isoquants of the input level sets of a production technology are not equal, the conventional Debreu-Farrell efficiency index is not a reliable indicator of the efficiency of inputs usage. On the other hand, it possesses the property of being homogeneous of degree minus one in the inputs whose efficiency level is being measured. In this paper an Extended Farrell efficiency measure is proposed which is a reliable indicator of input efficiency and homogeneous of degree minus one, improving on the otherwise superior Russell index proposed by Färe and Lovell in these respects. On the other hand the property of strict negative monotonicity in inputs may not hold for all specifications of technology, though it is shown how the measure can be easily modified to satisfy monotonicity for the class of linear technologies.