Efficiency and global scale characteristics on the "no free lunch" assumption only
UNSPECIFIED. (2004) Efficiency and global scale characteristics on the "no free lunch" assumption only. JOURNAL OF PRODUCTIVITY ANALYSIS, 22 (3). pp. 227-257. ISSN 0895-562XFull text not available from this repository.
In a production technology, the type of returns to scale (RTS) associated with an efficient decision making unit (DMU) is indicative of the direction of marginal rescaling that the DMU should undertake in order to improve its productivity. In this paper a concept of global returns to scale (GRS) is developed as an indicator of the direction in which the most productive scale size (MPSS) of an efficient DMU is achieved. The GRS classes are useful in assisting strategic decisions like those involving mergers of units or splitting into smaller firms. The two characterisations, RTS and GRS, are the same in a convex technology but generally different in a non-convex one. It is shown that, in a non-convex technology, the well-known method of testing RTS proposed by Fare et al. is in fact testing for GRS and not RTS. Further, while there are three types of RTS: constant, decreasing and increasing (CRS, DRS and IRS, respectively), the classification according to GRS includes the fourth type of sub-constant GRS, which describes a DMU able to achieve its MPSS by both reducing and increasing the scale of operations. The notion of GRS is applicable to a wide range of technologies, including the free disposal hull (FDH) and all polyhedral technologies used in data envelopment analysis (DEA).
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HF Commerce
H Social Sciences > HC Economic History and Conditions
H Social Sciences
|Journal or Publication Title:||JOURNAL OF PRODUCTIVITY ANALYSIS|
|Publisher:||KLUWER ACADEMIC PUBL|
|Official Date:||November 2004|
|Number of Pages:||31|
|Page Range:||pp. 227-257|
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