Fisher ideal output,input, and productivity indexes revisited

A productivity index for a firm is generally defined as an output index divided by an input index. The first part of the paper uses the test or axiomatic approach to index number theory in order to determine the appropriate functional form for the output and input indexes. It is found that the Fisher ideal index satisfies 21 reasonable tests and is uniquely characterized by a subset of these tests. In the remainder of the paper, the economic approach to productivity indexes introduced by Caves, Christensen, and Diewert is adopted and, again, a strong justification for the Fisher productivity index is provided.The editor of this paper was N.R. Adam.This research was supported by a Strategic Grant from the Social Science and Humanities Research Council of Canada. The author is indebted to Shelley Hey for typing assistance.