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Regular variable returns to scale production frontier and efficiency measurement
Date Issued
2024
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Journal
ISSN
0030-364X
1526-5463
Citation
Operations Research, 2024, vol. 73(5), pp. 2830-2848.
Description
Open access
Type
Peer Reviewed Journal Article
Abstract
Breakthrough in Measuring Efficiency with Respect to Nonconvex Technology The variable returns to scale (VRS) frontier, commonly used in data envelopment analysis, has a convex technology set and follows a specific “regular VRS” structure in economics. This structure demonstrates increasing, constant, and then, decreasing returns to scale, and it is the standard in data envelopment analysis. When the convexity assumption is relaxed, modeling regular VRS becomes challenging, and no satisfactory solution currently exists for multioutput production. In “Regular Variable Returns to Scale Production Frontier and Efficiency Measurement,” Li, Tsang, Lee, and He introduce a new framework for analyzing regular variable returns to scale and propose an innovative empirical production frontier. This new frontier can more accurately measure technical efficiency without the convexity assumption. The implications of this research are extensive, impacting fields like manufacturing, agriculture, healthcare, banking, etc., with crucial findings for informed decision making and effective policy implementation.
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