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 âad hocâ 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 âsuperlativeâindex and not just an ad hoc approximation of technology (and changes in technology). Their starting point in substantiating their claim is Shephardâs (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
Bulletin of Economic Research – Wiley
Published: Jan 1, 1994
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