Rolf Fare

• Oregon State University

One approach used to calculate the costs and productivity changes associated with pollution abatement involves modeling the joint production of good and bad outputs. The joint production model treats the process of transforming inputs into good and bad outputs as a black box. We investigate the consequences of generalizing the transformation proces...

Sweden has a long history of ambitious environmental, energy and climate policy. Due to the large amount of data available it is possible to perform statistically sound analysis and assess long term changes in productivity, efficiency, and technological development. The data at hand together with Sweden’s ambitious energy and climate policy provide...

The annual growth of hypoxia in the Gulf of Mexico is largely attributed to agricultural nutrient loadings that originate from the Mississippi/Atchafalaya River Basin (MARB). To effectively target conservation efforts throughout the entire MARB in order to reduce Gulf hypoxia, strategies to rank areas according to their impact on both agricultural...

We use the directional output distance function in cost space to recover absolute prices of nonmarket goods such that the ratio of prices equals the marginal rate of transformation of outputs in production. As such, the method is quite useful for valuing nonmarketed goods such as those produced by government entities such as the National Park Servi...

The authors exploit the duality between the directional output price distance function and the maximal revenue function to estimate the price efficiency of Japanese securities firms during 2000 to 2007, a period in which securities firms faced greater competitive pressures. The directional output price distance function gives the maximum feasible a...

In this paper we propose new aggregate or ‘group’ primal and dual scale elasticity measures of an economic system (e.g., industry consisting of several firms, etc.). The main contribution of the paper is that we show under what assumptions a formal relationship between these new aggregate scale elasticity measures and the individual scale elasticit...

It is well known that market power depends on the price elasticity of demand and the intensity of competition. It is also well known that technology can influence market power through its effect on market structure. However, there is limited research on the direct link between market power and technology. In this paper, we investigate this relation...

Kirkley, J. E., Walden, J., and Färe, R. 2011. A general equilibrium model for Atlantic herring (Clupea harengus) with ecosystem considerations. – ICES Journal of Marine Science, 68: 860–866. A framework is presented for assessing the economic ramifications of ecosystem-based management decisions, with attention focused on Atlantic herring (Clupea...

The objective of this research was the development of a method that integrated an activity analysis model of profits from production with a biophysical model, and included the capacity for optimization over multiple objectives. We specified a hybrid genetic algorithm using activity analysis as a local search method, and NSGA-II for calculation of t...

Network DEA provides a flexible way to customize DEA problems to specific applications. It provides 'links' across DMU's, or alternatively allows us to look inside a complex DMU with multiple nodes. In this short paper, we provide an illustration of a dynamic network DEA model. It is a network in the sense that it links the behavior of DMU's across...

A water quality index (WQI) is a single numeric score used to characterize the water quality of a certain place at a particular time. WQI's are commonly employed to assess water quality and the complex, multidimensional data collected from water quality monitoring. The greatest difficulty in constructing a water quality index is deciding on what we...

We examine conditions under which plant-level data can be used to make firm-level inferences about technology, supply, and demand. Global conditions for such reaggregation involve nonjointness restrictions in both the plant and product dimensions. In the neighborhood of the firm’s fixed overheads, however, restrictions may be eased by appealing to...

This note shows that the Nerlovian profit indicator may be aggregated over firms into an industry measure of profit efficiency. The note also provides conditions under which the technical component of the indicator may also be aggregated.

This study models the joint production of good and bad output production and calculates traditional productivity when bad output production is regulated and when it is unregulated. We apply this model to data for U.S. coal-fired electric power plants for 1985–1995 and compare rates of productivity and technical change to gain an understanding of th...

The last two decades have witnessed a revival in interest in the measurement of productive efficiency pioneered by (1957) and (1951). 1978 was a watershed year in this revival with the christening of DEA by (1978) and the critique of Farrell technical efficiency in terms of axiomatic production and index number theory in Fare and (1978). These pape...

In this paper we introduce a complete duality theory based on directional distance functions. This duality theory parallels the duality theory based on radial distance functions in Färe and Primont (1995).

We use the directional output distance function to derive estimates of production inefficiency, shadow prices for polluting outputs, and the associated pollution costs. Using a quadratic functional form for the directional output distance function and data for the U.S. agricultural sector during 1960–1996, we find that the pollution costs (the shad...

We use a quadratic directional output distance function to measure the technical efficiency of 209 electric utilities that produce electricity and a polluting byproduct, SO2 before (1993) and after (1997) implementation of Phase I regulations of the acid rain program. We also estimate the shadow price of SO2 and the output elasticity of substitutio...

In this paper we show that in order to aggregate individual efficiency scores into a group (e.g., industry) efficiency score, in such a way that the multiplicative structure of further decompositions is preserved with equal weights across components, the weighted geometric mean is required. We also show how the weights can be chosen using a variati...

Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal r...

The discussion about the bias due to input (or output) aggregation in efficiency measurement based on data envelopment analysis, recently revisited by Tauer (2001) and Fare and Zelenyuk (2002) is continued. Attention is focused on the direction and the bounds of the aggregation bias.

The purpose of this paper is twofold: to show how to measure profit efficiency in banking using a newly developed technique, and to use that technique to determine the effect of risk-based capital requirements on the profit performance of US banks. The measure of profit efficiency used captures deviations from profit maximization arising from techn...

In this paper we use techniques from the efficiency measurement literature to evaluate the performance of six US beer firms in terms of their ability to translate advertising messages into sales. We employ quarterly data from the 1983 to 1993 period. Our results suggest that Anheuser–Busch was relatively efficient in its advertising and its choice...

This paper builds on earlier efforts to integrate preferences into a DEA model. Rather than including an explicit utility function as a constraint to a DEA problem as in Färe et al. (2002), here we use the notion of dominance to identify a ’¡Ærevealed’¡Ç indifference curve, which is then included in the DEA model. This allows us to identify what Ha...

The paper addresses the question of whether trade restrictiveness impacts economic performance, via a trade restrictiveness index that is decomposable into a trade distortion and a domestic distortion component. The paper builds on the Anderson and Neary price index measure of trade distortion, in evaluating trade restrictiveness via a distance fun...

This paper addresses aspects of New Zealand's economic performance by first analysing the country's relative international position against a comparative group of five OECD countries. Cointegration test results fail to confirm prima facie evidence that New Zealand's per capita output is on a clear divergence path from the rest of the group. A detai...

In this paper we investigate two approaches to the aggregation of the Luenberger productivity indicator. Our first approach imposes allocative efficiency of every observed input-output vector with respect to the technologies in every time period. Our second approach only imposes allocative efficiency of observed input-output vectors with respect to...

This paper defines the notion of unbiased aggregation of inputs and provides a necessary and sufficient condition for this to apply. Copyright 2002 by Taylor and Francis Group

This paper starts with the basic premise that the conventional measures of productivity growth, which ignore joint production of good and bad outputs, are biased. We then construct an alternative productivity growth measure using activity analysis. An application to U.S. agriculture demonstrates its usefulness. More specifically, we show that conve...

This paper analyses productivity growth in 16 of Taiwan's manufacturing industries during the period 1978-92. The non-parametric Data Envelopment Analysis approach is used to compute Malmquist productivity indexes. These are decomposed into efficiency change and technical change. The latter is further decomposed into an output bias, an input bias a...

Recently Chambers and Färe (1998) [Chambers, R.G., Färe, R., 1998. Translation homotheticity. Economic Theory 11, 629–641] generalized the Shephard type of “multiplicative” homotheticity into an “additive” type, which they termed translation homotheticity. This type of homotheticity has parallel expansion paths and its cost function is additively s...

We address the question: ‘When can slacks be used to identify congestion?’ We elaborate on a result by Cooper et al. (Socio-Economic Planning Sciences 2001; 35:205–215) in answering that question.

Inada (1963) provided properties of the production function that are useful in the study of economic growth. Shephard (1970a) provided an axiomatic approach to the study of production theory. He applied these axioms to give a formal statement of the law of diminishing returns (Shephard, 1970b). In this paper we demonstrate that the Inada conditions...

In this paper, measures of capacity are developed following those suggested in 1968 by Leif Johansen. By taking advantage of Shephard's duality, both primal and dual multi-output measures of capacity can be derived. Having generalized the capacity utilization measures, the authors show how these may be entered into measures of productivity. In part...

This paper addresses a paradox noted by Kevin Fox, that ‘using a standard definition of cost efficiency, a multi-product firm may be more efficient in producing each product than any other firm, yet it may not be the most efficient firm overall.’ We show why the paradox arises and how to avoid the paradox. Specifically we use the duality between co...

In this paper, we provide some comments on Cooper, Seiford and Zhu (this issue). We focus on clarifying the distinction between our approach to modeling technology and measuring congestion, differentiating between weak disposability and the law of variable proportions. We also show that whereas our congestion measure identifies congestion only if a...

Most traditional DEA models treat their reference technologies as black boxes. Our network models, developed for the Swedish Institute for Health Economics (IHE), allow us to look into these boxes and to evaluate organizational performance and its component performance. The very general structure of the network model allows us to apply this model t...

The present paper is concerned with deriving conditions on technology which are required for additive separability of the associated profit function. The appropriate representation of technology in this case is the Luenberger shortage function. The paper shows that this function must be simultaneously input-and-output translation homothetic.

Summary form only given as follows. This paper extends earlier work on specification of output capacity and utilization in an output oriented data envelopment analysis (DEA) framework (which we refer to as primal approach) to what we call a dual approach, which introduces input prices and cost. This provides a link to the traditional measures of ca...

Dominance techniques are used to create optimistic and pessimistic convex free-disposal hull technologies for data sets. These optimistic and pessimistic technologies create bounds within which can reasonably expect the true technology to lie. The potential differences between these optimistic and pessimistic reference technologies are examined by...

This paper discusses inner and outer approximation to a technology given by a data set of prices and quantities.

Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal r...

The main goal of this monograph is to generalize our earlier work on production frontiers and performance measurement to the intertemporal case. Analysis of multi period data using activity analysis models is already widespread, of course. One obvious example is our own work on measurement of productivity using activity analysis models to construct...

The Malmquist productivity index has many attractive features. One is that it can be epxressed as the product of a technical efficiency change index and a technical change index. In this paper we express the technical change index as the product of a magnitude index and a bias index. We then express the bias index as the product of an output bias i...

RESUMEN El sector energ�tico est� experimentando transformaciones sustanciales como consecuencia del desarrollo de las energ�as renovables, cuyo impulso no s�lo aporta beneficios ambientales, sino que tambi�n reduce la dependencia energ�tica y contribuye a la creaci�n de empleo. En este trabajo realizamos un an�lisis prospectivo del empleo en el se...

The productivity of firms when some outputs (pollution) are undesirable has been studied in the literature for some time. In this paper we introduce an environmental performance indicator based on the decomposition of overall factor productivity into a pollution index and an input-output efficiency index. This indicator is compared to the more conv...

Nishimizu and Hulten (1978) developed a model for measuring productivity growth when intermediate inputs are explicitly recognized. they show "...that the aggregate rate of productivity change is the weighted sum of the sectoral rates " (p. 353). To derive this result, the authors assume that the inputs are "...allocated efficiently among sectors "...

Caves et al. in 1982 introduced a productivity measure “that does not proceed from a continuous timer presentation”. They named these indexes after Sten Malmquist who in 1953 used ratios of distance functions to formulate quantity indexes in the consumer context.In a later paper, Diewert proposed an alternative definition of productivity also based...

We explore the relationship between R. W. Shephard's input distance function (“Cost and Production Functions,” Princeton Univ. Press, Princeton, 1953) and D. G. Luenberger's benefit function (J. Math. Econ.21(1992a), 461–481). We point out that the latter can be recognized in a production context as a directional input distance function which can e...

Undesirable outputs are often produced together with desirable outputs. This joint production of good and bad outputs brings about a difficulty for productivity measurement. Here we introduce a directional distance function and use it as a component in a new productivity index. This index, as an empirical example shows, seems to solve the problem c...

In this paper we introduce DEA models that can be used to compute the way firms' profitability changes when the assignment of property rights changes.

The purpose of this paper is to develop models with and without emissions trading and to compare industry profits under the two regimes. The model in which emissions trading is permitted is a nonparametric industry frontier model in the spirit of Fare, Grosskopf and Li (1992). It is relative to this model that industry profit is computed. This prof...

A dual representation of a technology, e.g., a cost function, may not contain all of the technological information, but it will contain all of the information about input vectors that would be chosen by a cost-minimizing firm. At least this much is clear for deterministic technologies. The main question addressed in this paper is whether the same c...

This book presents a mathematical programming approach to the analysis of production frontiers and efficiency measurement. The authors construct a variety of production frontiers, and by measuring distances to them are able to develop a model of efficient producer behaviour and a taxonomy of possible types of departure from efficiency in various en...

This paper critiques a recent attempt to model pollution prevention using data envelopment analysis (DEA). We contribute an alternative model which explicitly models joint provision of desirable and undesirable outputs (a la Shephard and Fare (1974)), using weak disposability of output. We also extend earlier work by Fare, Grosskopf, Lovell and Pas...

The goal of this paper is to reveal the links among several seemingly unrelated literatures: 1.1) the nonparametric regularity test literature (see Afriat, 1972; Diewert and Parkan, 1983; Hanoch and Rothschild, 1972; Varian, 1984),2.2) the efficiency measurement literature (Farrell, 1957, is the classic reference, but also included is what has been...

In this paper we extend our earlier work on productivity by incorporating attributes into the technology. The attributes are used together with ratios of distance functions to measure service quality of the production units.

In this paper we analyze the impact on firm profits of the environmental regulations in the Swedish pulp and paper industry. The approach taken is a non-parametric programming model of the technology. A feature of this industry is that environmental regulations are determined individually for each mill. A question, then, is if these individual regu...

This paper introduces an intertemporal variable cost indirect technology which permits technological change over time, as well as allowing for intertemporal financial flexibility. It characterizes firms or agencies which maximize outputs or services subject to a budget constraint. We define intertemporal Farrell-type output oriented technical effic...

[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed...

Collateral impacts of LULUCF projects, especially those concerning social and environmental aspects, have been recognised as important by the Marrakech Accords. The same applies to the necessity of assessing and, if possible, of quantifying the magnitude of these impacts. This article aims to define, clarify and structure the relevant social, econo...

The 1/n problem potentially limits the effectiveness of profit sharing in motivating workers. While the economic literature suggests that reciprocity can mitigate this problem, it remains silent on the optimal degree of reciprocity. We present a representative model demonstrating that reciprocity may increase productive effort but may also increase...

Banker (1984) introduced the idea that the sum of the intensity variables in the DEA (Data Envelopment Analysis) model can be used to identity returns to scale. A counterexample in Chang and Guh (1991) shows that Banker’s method may fail. This prompted R. D. Banker and R. M. Thrall [Eur. J. Oper. Res. 62, No. 1, 74-84 (1992; Zbl 0760.90001)] to dev...

Notions of input-neutral technical change and neutral productivity growth are compared and constrasted. Three natural conjugate "neutrality pairs," each corresponding to a notion of input-neutral technical change and neutral productivity growth, are considered and their structural implications are deduced. Necessary and sufficient conditions for a...

This paper analyzes productivity growth in seventeen OECD countries over the period 1979-88. A nonparametric programming method (activity analysis) is used to compute Malmquist productivity indexes. These are decomposed into two component measures, namely, technical change and efficiency change. The authors find that U.S. productivity growth is sli...

This book presents a mathematical programming approach to the analysis of production frontiers and efficiency measurement. The authors construct a variety of production frontiers, and by measuring distances to them are able to develop a model of efficient producer behaviour and a taxonomy of possible types of departure from efficiency in various en...

In this paper, the authors generalize the quantity rationing problem and assume that, rather than quantities being constrained, the decisionmaker has to spend a certain amount on some goods. They show that the cost function inferred from this model need not be quasi-concave in prices. The authors end the paper by showing how a duality theory may be...

Many production activities generate undesirable byproducts in conjunction with the desirable outputs they produce. Pittman (1983) showed how to adjust productivity calculations, and Färe et al. (1989) showed how to adjust efficiency measures, in the presence of undesirable outputs. Here we show how to estimate output distance functions as frontiers...

Many production activities generate undesirable byproducts in conjunction with the desirable outputs they produce. Russell W. Pittman (1983) showed how to adjust productivity calculations, and Rolf Fare et al. (1989) showed how to adjust efficiency measures, in the presence of undesirable outputs. Here the authors show how to estimate output distan...

We present an activity analysis model of multiunit banking. Multiunit banks include banks with several branches, multibank holding companies with several affiliate banks, and banks that result from the merger or consolidation of two or more banks. In addition, various efficiency measures are presented in an attempt to gauge the potential gains from...

The objective of this paper is to empirically test the political-economic hypothesis that institutions have played major roles not only in the generation of technical change, but also in improving micro-units' ability to realize the potential gains from such changes. Using data from Indian agriculture, the study shows that the supply of institution...

Caves, Christensen and Diewert [1982a] showed that the Trnqvist productivity index is superlative in a considerably more general sense than had been previously believed. We examine the allocative and technical efficiency hypotheses on which their finding rests. We show that the allocative efficiency hypothesis can be modified, which makes the Trnqv...

In this paper Farrell's notions of efficiency are formulated for a rate of return regulated firm.

The Frisch tradition in the theory of production dates as far back as 1926, when Ragnar Frisch gave a series of lectures on the subject at the University of Oslo. The year after, the lectures were published in mimeographed form, to be followed by no less than eight revised and enlarged editions, of which the last (from 1962) was in book form. A mim...

A nonparametric approach to expenditure-constrained profit maximization is developed. A deterministic frontier profit function is constructed with and without expenditure constraints. Foregone profit is used as dual evidence for the existence of expenditure constraints. Individual evaluations on performance and expenditure constraints are produced....

In many instances, a firm's observed production choices will not be consistent with profit maximization or cost minimization at market prices. Such firms are generally assumed to minimize cost with respect to shadow prices. The authors extend this shadow cost function approach to allow for the identification of firm-specific shadow prices. Using a...

[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed...

This article provides a method of measuring performance in the public sector, specifically performance of school districts. The technique is closely related to the family of Farrell type efficiency measures as well as data envelopment analysis (DEA). It also can be viewed as a generalization of earlier work on educational production functions. The...

Expenditures to abate pollution typically draw resources away from the production of other goods and services, affecting productivity of "goods' production. This has been of particular concern in the electric utility sector where the annual growth rate of 7.6% for 1948-66 declined to 3.3% for 1966-78. These "productivity' effects reflect the opport...