The Decompositions of Cost Variation
20 Pages Posted: 9 May 2019
Date Written: May 7, 2019
In this paper a number of meaningful and empirically implementable decompositions of the cost variation (in difference and ratio form) are developed. The components distinguished are price level change, technical efficiency change, allocative efficiency change, technological change, scale of activity change, and price structure change. Given data from a (balanced) panel of production units, all the necessary ingredients for the computation of the various decompositions can be obtained by using linear programming techniques. An application is provided.
Keywords: cost variation, decomposition, efficiency change, technological change, index number theory
JEL Classification: C43, D24, O12
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