Nonparametric Efficiency Analysis under Price Uncertainty : A First-Order Stochastic Dominance Approach

T. Kuosmanen, T. Post

Research output: Contribution to journalArticleAcademicpeer-review

13 Citations (Scopus)

Abstract

This paper extends the nonparametric approach to efficiency analysis to deal with uncertainty of input-output prices. We generalize the notion of economic efficiency to derive necessary and sufficient first-order stochastic dominance (FSD) efficiency conditions. Interestingly, the FSD conditions include as limiting cases the traditional conditions for economic efficiency and technical efficiency. Furthermore, we propose empirical tests for these FSD conditions, which require minimal assumptions concerning the preferences of the decision-maker and the statistical distribution of the prices. From operational point of view, the FSD conditions can be tested empirically using standard mathematical programming techniques. An empirical application to the Dutch electricity distribution sector illustrates the approach
Original languageEnglish
Pages (from-to)183-200
JournalJournal of Productivity Analysis
Volume17
DOIs
Publication statusPublished - 2002

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