Inefficiency Measurement

American Economic Journal: Microeconomics, Forthcoming

26 Pages Posted: 2 Dec 2011 Last revised: 1 May 2013

See all articles by Christopher P. Chambers

Christopher P. Chambers

Georgetown University - Department of Economics

Alan D. Miller

Faculty of Law, Western University

Date Written: December 25, 2012

Abstract

We introduce an ordinal model of efficiency measurement. Our primitive is a notion of eciency that is comparative, but not cardinal or absolute. In this framework, we postulate axioms that we believe an ordinal efficiency measure should satisfy. Primary among these are choice consistency and planning consistency, which guide the measurement of efficiency in a firm with access to multiple technologies. Other axioms include scale-invariance, which states that pounds and kilograms are treated the same, strong monotonicity, which states that efficiency should decrease if the inputs and outputs remain static when the technology becomes unambiguously more efficient, and a very mild continuity condition. These axioms characterize a family of path-based measures. By replacing the continuity condition with symmetry, which states that the names of commodities do not matter, we obtain the coefficient of resource utilization.

Keywords: efficiency measurement, coefficient of resource utilization, ordinal, choice consistency, planning consistency, path-based

JEL Classification: C43, D24

Suggested Citation

Chambers, Christopher P. and Miller, Alan D., Inefficiency Measurement (December 25, 2012). American Economic Journal: Microeconomics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1966962 or http://dx.doi.org/10.2139/ssrn.1966962

Christopher P. Chambers

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

Alan D. Miller (Contact Author)

Faculty of Law, Western University ( email )

1151 Richmond Street
London, Ontario N6A3K7
Canada

HOME PAGE: http://alandmiller.com

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