Linear Input Aggregation Bias in Nonparametric Technical Efficiency Measurement |
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| Authors: | Arthur C Thomas Loren W Tauer |
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| Institution: | Graduate research assistant, Department of Agricultural Economics, Cornell University, Ithaca, New York.;Professor, Department of Agricultural Economics, Cornell University, Ithaca, New York. |
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| Abstract: | An attraction of the nonparametric approach to measuring technical efficiency is that no a priori structure is placed on the production process of the firm. However, inputs are typically linearly aggregated, either explicitly or implicitly. It is shown that this introduces bias in the technical efficiency measurement. The computed technical efficiency measure becomes an economic efficiency measure comprised of both technical and allocative efficiency. An empirical application demonstrates the bias. |
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