Title: The law of one price in data envelopment analysis: Restricting weight flexibility across firms
Authors: Kuosmanen, T ×
Cherchye, Laurens
Sipilainen, T #
Issue Date: May-2006
Publisher: Elsevier
Series Title: European Journal of Operational Research vol:170 issue:3 pages:735-757
Abstract: The Law of One Price (LoOP) states that all firms face the same prices for their inputs and outputs under market equilibrium. Taken here as a normative condition for 'efficiency prices', this law has powerful implications for productive efficiency analysis, which have remained unexploited thus far. This paper shows how LoOP-based weight restrictions can be incorporated in Data Envelopment Analysis (DEA). Utilizing the relation between industry-level and firm-level cost efficiency measures, we propose to apply a set of input prices that is common for all firms and that maximizes the cost efficiency of the industry. Our framework allows for firm-specific output weights and for variable returns-to-scale, and preserves the linear programming structure of the standard DEA. We apply the proposed methodology to the evaluation of the research efficiency of economics departments of Dutch Universities. This application shows that the methodology is computationally tractable for practical efficiency analysis, and that it helps in deepening the DEA analysis. (c) 2004 Elsevier B.V. All rights reserved.
ISSN: 0377-2217
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Department of Economics, Leuven - miscellaneous
× corresponding author
# (joint) last author

Files in This Item:

There are no files associated with this item.

Request a copy


All items in Lirias are protected by copyright, with all rights reserved.

© Web of science