A theoretical framework is developed for decomposing partial factor productivity and measuring technical inefficiency when the underlying technology is characterized by factor non-substitution. With Farrell’s (1957) radial index of technical inefficiency being inappropriate in this case, Russell non-radial indices are adapted to measure technical inefficiency in a Leontief-type model. A system of factor demand equations with a regime specific technical inefficiency term is proposed and estimated allowing for dependence across inputs using a copula approach. Then the paper presents a complete decomposition of partial factor productivity changes using a dataset of US steam-power electric generation utilities.
- technical efficiency
- model selection
Genius, M., Stefanou, S. E., & Tzouvelekas, V. (2012). Measuring productivity growth under factor non-substitution: An application to US steam-electric power generation utilities. European Journal of Operational Research, 220(3), 844-852. https://doi.org/10.1016/j.ejor.2012.02.023