Journal
JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY
Volume 60, Issue 11, Pages 1594-1608Publisher
PALGRAVE MACMILLAN LTD
DOI: 10.1057/jors.2009.62
Keywords
DEA (data envelopment analysis); indirect allocative inefficiency; directional distance functions; productivity change; Japanese banking
Funding
- Japan Society for the Promotion of Science [18201030, 19310098]
- Grants-in-Aid for Scientific Research [18201030, 19310098] Funding Source: KAKEN
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Building on the method used in previous indirect production studies, we construct an indicator of indirect output allocative inefficiency. Our indicator equals the difference between a revenue-constrained directional input distance function and a directional input distance function that depends on outputs, rather than revenue. The indicator measures the overuse of inputs that occurs when firms do not choose a revenue maximizing mix of outputs. Adding a time dimension allows productivity change to be measured. In an empirical illustration of our method we find that Japanese banks use, between 2% and 7%, too many inputs because bank outputs are inefficiently allocated.
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