Reviewing the literature on non-parametric dynamic efficiency measurement: state-of-the-art

Abstract

Much of the literature on static efficiency measurement models assumes that the inputs are fully used for producing outputs in the same period, with the result that no time interdependence exists between the input utilization and output realizations for a production unit in consecutive periods. A review of the literature on non-parametric dynamic efficiency models identifies five key factors of the inter-temporal dependence between input and output levels over different periods: (i) production delays; (ii) inventories (inventories of exogenous inputs or inventories of intermediate and final products); (iii) capital or generally quasi-fixed factors (and associated embodied technological change, vintage specific capital); (iv) adjustment costs; and (v) incremental improvement and learning models (disembodied technological change). This paper reviews the literature and finds that the dynamic issues associated with adjustment costs and capital have received considerable attention in the literature, whereas the dynamic issues associated with inventories have received less attention. The paper concludes with suggestions for future research such as relaxing the perfect anticipation/knowledge assumption for future variables, prices, and states. Moreover, Dynamic Network Data Envelopment Analysis has provided a unifying framework for some dynamic factors, but further development of these models is necessary including meaningful applications.