The choice of a technical efficiency measure on the free disposal hull reference technology: A comparison using US banking data |
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Institution: | 1. Faculty of Economics, Technical University of Ostrava, Ostrava, Czech Republic;2. Transportation Research Institute, Hasselt University, Diepenbeek, Belgium;1. Department of Mathematics and Applications, University of Mohaghegh Ardabili, Ardabil, Iran;2. School of Business and Economics, Loughborough University, Loughborough LE11 3TU, UK |
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Abstract: | This paper evaluates a variety of technical efficiency measures based on a given nonparametric reference technology, the free disposal hull (FDH). Specifically, we consider the radial measure of Debreu (1951)/Farrell (1957) and the nonradial measures of Färe (1975), Färe and Lovell (1978) and Zieschang (1984). Furthermore, input-based, output-based, and graph efficiency versions of these four measures are computed. Theoretical consideration as to the best choice among these alternative measures is inconclusive; therefore, we examine this problem from an empiricalviewpoint. Calculating thirteen different measures of technical efficiency for a sample of US banks, we compare the measures' efficiency distributions and rankings, paying particular attention to how well the radial measure approximates its nonradial alternatives. |
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