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The most frequently used empirical production frontier in data envelopment analysis (DEA) has a convex production set and displays a special structure in Economics, called regular variable returns to scale (RVRS) in this paper: the production technology exhibits increasing returns to scale at the beginning of the production process and finally decreasing returns to scale. When the assumption of convexity is relaxed, modeling RVRS becomes difficult and currently no satisfactory solution is available in multi-output production. Overcoming these difficulties, this paper incorporates RVRS to the free disposal hull (FDH) frontier under multiple outputs. We establish a framework of analyzing RVRS and recommend a RVRS empirical production frontier for measuring technical efficiency with multiple outputs. In the presence of RVRS without convexity, the value of technical efficiency measure computed from this new frontier is closer to the “true” value than that from the FDH frontier, and the conventional VRS frontier may cause misleading implications.
Presenter(s)
Sung Ko Li, Hong Kong Shue Yan University
Non-Presenting Authors
Xinju He, Hefei University of Technology
Chun Kei Thomas Tsang, Hong Kong Baptist University
Shu Kam Lee, Hong Kong Baptist University
Regular Variable Returns to Scale Production Frontier and Efficiency Measurement
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Organized Session Abstract Submission
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Session: [020] PRODUCTIVITY AND EFFICIENCY ANALYSIS 1 Date: 4/11/2023 Time: 12:45 PM to 2:30 PM