Firm and industry level profit efficiency analysis under incomplete price data: A nonparametric approach based on absolute and uniform shadow prices

T. Kuosmanen, M. Kortelainen, T. Sipilainen, L.J.H. Cherchye

Research output: Contribution to journalArticleScientificpeer-review

27 Citations (Scopus)

Abstract

We discuss the nonparametric approach to profit efficiency analysis at the firm and industry levels in the absence of complete price information. Two new insights are developed. First, we measure profit inefficiency in monetary terms using absolute shadow prices. Second, we evaluate all firms using the same input-output prices. This allows us to aggregate firm-level profit inefficiencies to the overall industry inefficiency. Besides the measurement of profit losses, the presented approach enables one to recover absolute price information from quantity data. We conduct a series of Monte Carlo simulations to study the performance of the proposed approach in controlled production environments.
Original languageEnglish
Pages (from-to)584-594
JournalEuropean Journal of Operational Research
Volume202
Issue number2
Publication statusPublished - 2010

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