The Measurement of Productive Efficiency: A Reconsideration

Abstract

The purpose of this paper is to generalize the Farrell indexes of productive efficiency to nonhomothetic production technologies, and at the same time maintain the cost interpretation of the Farrell measures. Since the generalized indexes rely heavily on recent developments in the estimation of frontier cost and production functions, several frontier models are reviewed. In addition to generalized indexes of technical, allocative, and overall productive efficiency, a variety of single-factor efficiency measures are discussed. The applicability of the proposed efficiency measures is illustrated with a numerical example of electric power generation.