Template-Type: ReDIF-Paper 1.0
Author-Name: Frederic Ang
Author-Name-First: Frederic
Author-Name-Last: Ang
Author-Email: frederic.ang@wur.nl
Author-Workplace-Name: Business Economics Group, Wageningen University
Author-Name: Pieter Jan Kerstens
Author-Name-First: Pieter Jan
Author-Name-Last: Kerstens
Author-Email: pjk@ifro.ku.dk
Author-Workplace-Name: Department of Food and Resource Economics, University of Copenhagen
Title: Superlative approximation of the Luenberger-Hicks-Moorsteen productivity indicator: Theory and application
Abstract: Consisting of the difference between an output indicator and an input indicator, the Luenberger-Hicks-Moorsteen (LHM) productivity indicator allows straightforward interpretation. However, it requires estimation of distance functions that are inherently unknown. This paper shows that a simple Bennet profit indicator is a superlative approximation of the LHM indicator when one can assume profit-maximizing behavior and the input and output directional distance functions can be represented up to the second order by a quadratic functional form. We also show that the Luenberger and LHM-approximating Bennet indicators coincide for an appropriate choice of the directional vectors. Focusing on a large sample of Italian food and beverages companies for the years 1995-2007, we empirically investigate the extent to which this theoretical equivalence translates into similar estimates.
Length: 23 pages
Creation-Date: 2018-11
File-URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2018/IFRO_WP_2018_10.pdf
File-Format: Application/pdf
Number: 2018/10
Classification-JEL: C43, D21, D22, D24
Keywords: Productivity and competitiveness, Bennet, Luenberger-Hicks-Moorsteen, superlative approximation, Italian food and beverages sector
Handle: RePEc:foi:wpaper:2018_10