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Profit Efficiency Analysis Under Limited Information. With an Application to German Farm Types

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  • Laurens Cherchye
  • Tom Van Puyenbroeck
Abstract
Lack of information about technology and prices often hampers the empirical assessment of the validity of the profit maximization hypothesis. We show that the non-parametric Data Envelopment Analysis (DEA) methodology comprises natural tools for dealing with such incomplete information. In particular, we focus on the economic meaning of the DEA model that builds on assumptions of monotone and convex production possibility sets, and provide some extensions that further exploit this economic interpretation. This perspective on DEA is all the more attractive since its original use for technical efficiency analysis is sometimes questionable given its restrictive production assumptions. An application to German farm types complements our methodological discussion. By using nonparametric tools to test specific hypotheses about profit differences, we further demonstrate the potential of the non-parametric approach in deriving strong and robust statistical evidence while imposing minimal structure on the setting under study.

Suggested Citation

  • Laurens Cherchye & Tom Van Puyenbroeck, 2002. "Profit Efficiency Analysis Under Limited Information. With an Application to German Farm Types," Public Economics Working Paper Series ces0202, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
    • Handle: RePEc:wpe:papers:ces0202
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    Cited by:

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    2. Ketikidis, P.H. & Koh, S.C.L. & Dimitriadis, N. & Gunasekaran, A. & Kehajova, M., 2008. "The use of information systems for logistics and supply chain management in South East Europe: Current status and future direction," Omega, Elsevier, vol. 36(4), pages 592-599, August.
    3. Walheer, Barnabé & Zhang, Linjia, 2018. "Profit Luenberger and Malmquist-Luenberger indexes for multi-activity decision making units: the case of the star-rated hotel industry in China," RIEI Working Papers 2018-06, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    4. Isabel-María García-Sánchez, 2010. "The effectiveness of corporate governance: board structure and business technical efficiency in Spain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(3), pages 311-339, September.
    5. Camanho, Ana Santos & Silva, Maria Conceicao & Piran, Fabio Sartori & Lacerda, Daniel Pacheco, 2024. "A literature review of economic efficiency assessments using Data Envelopment Analysis," European Journal of Operational Research, Elsevier, vol. 315(1), pages 1-18.
    6. Elie Appelbaum & Aman Ullah, 1997. "Estimation Of Moments And Production Decisions Under Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 631-637, November.
    7. Cherchye, Laurens & De Rock, Bram & Hennebel, Veerle, 2014. "The economic meaning of Data Envelopment Analysis: A ‘behavioral’ perspective," Socio-Economic Planning Sciences, Elsevier, vol. 48(1), pages 29-37.
    8. Cherchye, Laurens & De Rock, Bram & Walheer, Barnabé, 2016. "Multi-output profit efficiency and directional distance functions," Omega, Elsevier, vol. 61(C), pages 100-109.
    9. Nin-Pratt, Alejandro & McBride, Linden, 2014. "Agricultural intensification in Ghana: Evaluating the optimist’s case for a Green Revolution," Food Policy, Elsevier, vol. 48(C), pages 153-167.
    10. Vasileiou, Konstantinos Z., 2010. "Exploring the role of fertilizer application on the sustainability of Greek potato farms: A DEA application," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 11(1), pages 1-16, January.
    11. Odeck, James, 2009. "Statistical precision of DEA and Malmquist indices: A bootstrap application to Norwegian grain producers," Omega, Elsevier, vol. 37(5), pages 1007-1017, October.
    12. Leleu, Hervé, 2013. "Inner and outer approximations of technology: A shadow profit approach," Omega, Elsevier, vol. 41(5), pages 868-871.
    13. Zhao, Y. & Triantis, K. & Murray-Tuite, P. & Edara, P., 2011. "Performance measurement of a transportation network with a downtown space reservation system: A network-DEA approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 1140-1159.
    14. Sushil Gupta & Hossein Rikhtehgar Berenji & Manish Shukla & Nagesh N. Murthy, 2023. "Opportunities in farming research from an operations management perspective," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1577-1596, June.
    15. Kourtesi, Sofia & De Witte, Kristof & Polymeros, Apostolos, 2016. "Technical Efficiency in the Agricultural Sector - Evidence from a Conditional Quantile-Based Approach," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 17(2), June.
    16. Kuosmanen, Timo & Kazemi Matin, Reza, 2011. "Duality of weakly disposable technology," Omega, Elsevier, vol. 39(5), pages 504-512, October.
    17. Minh-Hieu Le & Wen-Min Lu, 2024. "An integrated multiple objective decision making approach for exploring the competitiveness of pharmaceutical multinational enterprises," Annals of Operations Research, Springer, vol. 341(1), pages 401-426, October.
    18. Kuosmanen, Timo & Kortelainen, Mika & Sipiläinen, Timo & Cherchye, Laurens, 2010. "Firm and industry level profit efficiency analysis using absolute and uniform shadow prices," European Journal of Operational Research, Elsevier, vol. 202(2), pages 584-594, April.
    19. Atici, Kazim Baris & Podinovski, Victor V., 2015. "Using data envelopment analysis for the assessment of technical efficiency of units with different specialisations: An application to agriculture," Omega, Elsevier, vol. 54(C), pages 72-83.

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    More about this item

    Keywords

    profit maximization hypothesis; Data Envelopment Analysis; non-parametric techniques; agriculture;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • P32 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Collectives; Communes; Agricultural Institutions
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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