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EFFICIENCY, QUANTITY INDEXES, AND PRODUCTIVITY INDEXES: A SYNTHESIS

EFFICIENCY, QUANTITY INDEXES, AND PRODUCTIVITY INDEXES: A SYNTHESIS R. Chambers,* R. Fare, ** and S. Grosskopf ** INTRODUCTION The purpose of this paper is to provide a unified discussion of efficiency, productivity and quantity indexes. Intuitively, these notions are clearly related, but, in practice economists generally do not recognize these interrelationships. As a result, the casual observer sees work in these areas as distinct and somewhat ad hoc. Recent work by Caves, Christensen, and Diewert (CCD) (1982) has contributed to a rehabilitation of what we shall call the index number approach to measuring productivity. They address the ‘ad hoc’ problem associated with that approach by showing that the Tornqvist index, in addition to being simple to compute, is also consistent with a flexible representation (translog)of the underlying technology. Thus, the Tornqvist is a ‘superlative’index and not just an ad hoc approximation of technology (and changes in technology). Their starting point in substantiating their claim is Shephard’s (1953) distance function, which completely and generally describes any technology including those with many inputs and many outputs. Distance functions are also useful because of their dual relationship to value functions, e.g., the cost function. We show that the distance function is the unifying notion which links efficiency measures, quantity http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Bulletin of Economic Research Wiley

EFFICIENCY, QUANTITY INDEXES, AND PRODUCTIVITY INDEXES: A SYNTHESIS

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References (12)

Publisher
Wiley
Copyright
Copyright © 1994 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0307-3378
eISSN
1467-8586
DOI
10.1111/j.1467-8586.1994.tb00575.x
Publisher site
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Abstract

R. Chambers,* R. Fare, ** and S. Grosskopf ** INTRODUCTION The purpose of this paper is to provide a unified discussion of efficiency, productivity and quantity indexes. Intuitively, these notions are clearly related, but, in practice economists generally do not recognize these interrelationships. As a result, the casual observer sees work in these areas as distinct and somewhat ad hoc. Recent work by Caves, Christensen, and Diewert (CCD) (1982) has contributed to a rehabilitation of what we shall call the index number approach to measuring productivity. They address the ‘ad hoc’ problem associated with that approach by showing that the Tornqvist index, in addition to being simple to compute, is also consistent with a flexible representation (translog)of the underlying technology. Thus, the Tornqvist is a ‘superlative’index and not just an ad hoc approximation of technology (and changes in technology). Their starting point in substantiating their claim is Shephard’s (1953) distance function, which completely and generally describes any technology including those with many inputs and many outputs. Distance functions are also useful because of their dual relationship to value functions, e.g., the cost function. We show that the distance function is the unifying notion which links efficiency measures, quantity

Journal

Bulletin of Economic Research – Wiley

Published: Jan 1, 1994

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