Multi-Output Profit Efficiency and Directional Distance Functions

KU Leuven Center for Economic Studies Discussion Paper Series DPS14.32

24 Pages Posted: 14 Nov 2014

See all articles by L. Cherchye

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Bram de Rock

Katholieke Universiteit Leuven - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics

Barnabé Walheer

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: November 7, 2014

Abstract

We extend a recently developed DEA methodology for cost efficiency analysis towards profit efficiency settings. This establishes a novel DEA toolkit for profit efficiency assessments in situations with multiple inputs and multiple outputs. A distinguishing feature of our methodology is that it assumes output-specific production technologies. In addition, the methodology accounts for the use of joint inputs, and explicitly includes information on the allocation of inputs to individual outputs. We also establish a dual relationship between our multi-output profit inefficiency measure and a technical inefficiency measure that takes the form of a multi-output directional distance function. Finally, we demonstrate the empirical usefulness of our methodology by an empirical application to a large service company.

Keywords: DEA, multiple outputs, profit efficiency, joint inputs, output-specific inputs, directional distance function

Suggested Citation

Cherchye, Laurens and de Rock, Bram and Walheer, Barnabé, Multi-Output Profit Efficiency and Directional Distance Functions (November 7, 2014). KU Leuven Center for Economic Studies Discussion Paper Series DPS14.32, Available at SSRN: https://ssrn.com/abstract=2523827 or http://dx.doi.org/10.2139/ssrn.2523827

Laurens Cherchye (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Bram De Rock

Katholieke Universiteit Leuven - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

Barnabé Walheer

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

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