Exact Allocative and Technical Inefficiency Using the Normalized Quadratic Cost System

FEDEA Working Paper No. EEE 210

30 Pages Posted: 13 Apr 2006

Date Written: June 2005

Abstract

In this paper we have built a theoretical model using a normalized quadratic cost system to obtain expressions for actual input demand and cost as functions of three components: frontier, allocative and technical inefficiency. We have used the shadow prices approach in the line of exact decomposition that allows to solve Greene's problem. Using the normalized quadratic cost system has permited to isolate not only allocative inefficiency but also the technical one, as simple functions of both parameters and variables. The model allows to obtain individual and time varying technical and allocative inefficency measures when a panel data is available. This model has been applied to cargo handling in Spanish ports.

Keywords: Normalized Quadratic Cost System, Allocative Inefficiency, Technical Inefficiency, the Greene problem, Exact Decomposition, Ports

JEL Classification: D21, C33, L92

Suggested Citation

Diaz-Hernandez, Juan Jose and Martinez-Budria, Eduardo and Jara-Diaz, Sergio R., Exact Allocative and Technical Inefficiency Using the Normalized Quadratic Cost System (June 2005). FEDEA Working Paper No. EEE 210, Available at SSRN: https://ssrn.com/abstract=894076 or http://dx.doi.org/10.2139/ssrn.894076

Juan Jose Diaz-Hernandez (Contact Author)

Universidad de La Laguna ( email )

Santa Cruz de Tenerife
Spain

Eduardo Martinez-Budria

Universidad de La Laguna ( email )

La Laguna, Santa Cruz de Tenerife
Spain

Sergio R. Jara-Diaz

Universidad de Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
49
Abstract Views
936
PlumX Metrics