A superlative indicator for the Luenberger-Hicks-Moorsteen productivity indicator: Theory and application

Frederic Ang, Pieter Jan Kerstens*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

10 Citations (Scopus)

Abstract

Consisting of the difference between an output indicator and an input indicator, the Luenberger-Hicks-Moorsteen (LHM) productivity indicator allows straightforward interpretation. However, its computation requires estimating distance functions that are inherently unknown. This paper shows that a computationally simple Bennet indicator is a superlative indicator for the LHM indicator when one can assume profit-maximizing behavior and the input and output directional distance functions can be represented up to the second order by a quadratic functional form. We also show that the Luenberger- and LHM-approximating Bennet indicators coincide for an appropriate choice of directional vectors. Focusing on a large sample of Italian food and beverages companies for the years 1995−2007, we empirically investigate the extent to which this theoretical equivalence translates into similar estimates. We find that the Bennet indicator is a close empirical alternative to the LHM indicator for the sample.

Original languageEnglish
Pages (from-to)1161-1173
JournalEuropean Journal of Operational Research
Volume285
Issue number3
Early online date26 Feb 2020
DOIs
Publication statusPublished - 16 Sept 2020

Keywords

  • Bennet
  • Italian food and beverages sector
  • Luenberger-Hicks-Moorsteen
  • Productivity and competitiveness
  • Superlative

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