Assumption Of Constant Returns Research Articles

Measurement of Technical and Scale Efficiency of Dairy Farms in Pune District of Maharashtra: Data Envelopment Analysis Approach

The present study intended to determine the technical and scale efficiency of sample dairy farms for evaluating their performance. Data Envelopment Analysis (DEA) technique was used to estimate the technical and scale efficiency of 80 each of member and nonmember dairy farms in the Pune district of Maharashtra state during 2019. Technical efficiency score further partitioned into pure technical efficiency and overall technical efficiency. The technical efficiency score was more for member dairy farms as compared to the non-members under the assumption of constant return to scale (CRS) and variable return to scale (VRS). It highlighted that the non-members of dairy cooperatives had more potential to reduce the input use without affecting the output level compared to the member group. It was also observed that the technical efficiency under the CRS assumption was more than VRS for both member and non-member groups. It revealed that the farms were scaled inefficient (SE<1) and not operating at optimal scale. The study further revealed a positive relationship between technical efficiency and herd size. It also revealed that the resource-saving potential due to the scale effect. So, it supported the policy of providing technical advice on the use of feed and fodder resources, better management practices, and increasing the herd size to increase the technical and scale efficiency.

Cost Efficiency Evaluation Based on a Data Envelopment Analysis Approach by Considering Undesirable Outputs on the Basis of the Semi-Disposability Assumption

It is considerably important to calculate the cost efficiency in data envelopment analysis for the efficiency evaluation of decision-making units. The present paper develops the classical cost efficiency model in which all the input prices are constant and certain for each decision-making unit, considering undesirable outputs under the semi-disposability assumption. The proposed models are interval and uncertain under the constant returns to scale and also variable returns to scale assumptions, for the easy solution of which, their lower and upper bounds are obtained on the basis of the theorem presented in the text. In order to simulate the proposed models and show their scientific capabilities, additionally, 56 electricity producing thermal power plants in Iran were studied in 2015. Results of the present study show that under both assumptions of constant returns to scale and variable returns to scale, the highest cost efficiency bounds belonged to the combined and steam cycle power plants. Moreover, the average of lower and upper cost efficiency bounds of the power plants under study were 34% and 35%, respectively, in 2015, under the constant returns to scale assumption, and 52% and 54%, respectively, under the variable returns to scale assumption.

Measuring Energy Efficiency in Kerala: Data Envelopment Analysis

Traditionally, there are two basically reciprocal energy efficiency Indicators: one, in terms of energy intensity, that is, energy use per unit of activity output, and the other, in terms of energy productivity, that is, activity output per unit of energy use. The enquiry that has proceeded from the problems associated with this method of a single energy input factor in terms of productivity has led to multi-factor productivity analysis. We have here two approaches: parametric and non-parametric. Parametric approach famously includes two methods: the erstwhile popular total factor energy productivity analysis and the currently fanciful stochastic frontier production function analysis; The non-parametric approach is popularly represented by data envelopment analysis. The present paper is an attempt to measure efficiency in electrical energy consumption in Kerala, India. We apply the non-parametric mathematical programming method of data envelopment analysis of the multi-factor productivity approach, and estimate the efficiency measures under the two scale assumptions of constant returns to scale (CRS) and variable returns to scale (VRS); the latter includes both increasing (IRS) and decreasing returns to scale (DRS). Scale efficiency measures are also given to find out whether a firm is operating at its optimal size or not, implying degrees of capacity utilization.

Evaluation of world’s largest social welfare scheme: An assessment using non-parametric approach

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the world’s largest social welfare scheme in India for the poverty alleviation through rural employment generation. This paper aims to evaluate and rank the performance of the states in India under MGNREGA scheme. A non-parametric approach, Data Envelopment Analysis (DEA) is used to calculate the overall technical, pure technical, and scale efficiencies of states in India. The sample data is drawn from the annual official reports published by the Ministry of Rural Development, Government of India. Based on three selected input parameters (expenditure indicators) and five output parameters (employment generation indicators), I apply both input and output oriented DEA models to estimate how well the states utilize their resources and generate outputs during the financial year 2013–14. The relative performance evaluation has been made under the assumption of constant returns and also under variable returns to scale to assess the impact of scale on performance. The results indicate that the main source of inefficiency is both technical and managerial practices adopted. 11 states are overall technically efficient and operate at the optimum scale whereas 18 states are pure technical or managerially efficient. It has been found that for some states it necessary to alter scheme size to perform at par with the best performing states. For inefficient states optimal input and output targets along with the resource savings and output gains are calculated. Analysis shows that if all inefficient states operate at optimal input and output levels, on an average 17.89% of total expenditure and a total amount of $780million could have been saved in a single year. Most of the inefficient states perform poorly when it comes to the participation of women and disadvantaged sections (SC&ST) in the scheme. In order to catch up with the performance of best performing states, inefficient states on an average need to enhance women participation by 133%. In addition, the states are also ranked using the cross efficiency approach and results are analyzed. State of Tamil Nadu occupies the top position followed by Puducherry, Punjab, and Rajasthan in the ranking list. To the best of my knowledge, this is the first pan-India level study to evaluate and rank the performance of MGNREGA scheme quantitatively and so comprehensively.

Bank Efficiency Analysis: Islamic Banks versus Conventional Banks in the Gulf Cooperation Council Countries 2006 - 2012

This study employs data envelope analysis to produce the efficiency measures for both Islamic and conventional banks and conducts the means tests to investigate the efficiency comparison between the two bank types in the Gulf Cooperation Council (GCC) countries. 28 conventional banks and 20 Islamic banks are selected across the six countries in the GCC according to data availability for the period 2006 – 2012. Two output variables, total loans and investments, and four input variables, total deposit, equity, fixed assets and general expenses are used in the DEA. Under the assumption of constant return to scale, no evidence is found for efficiency difference between the two bank types; and under the assumption of variable return to scale, the conventional banks are found to be more efficient than their Islamic counterparts in two points of time, 2009 and 2010, following the 2008 financial crisis. For within country efficiency comparisons, the two bank types are the same in Saudi Arabia, Kuwait and Qatar. The conventional banks are found to be more efficient than their Islamic counterparts in Bahrain and Emirates. The paper finds no evidence for the presence of technological improvements in the banking operations as indicated by the Malmquist productivity analysis.

An Efficiency and Total Factor Productivity Analysis of the Islamic Azad University

This study examines the role productivity and efficiency in the Islamic Azad University (IAU) of Iran by using the stochastic frontier production function over the period 2006 through 2009. The focus of this study is using a model of Stochastic Frontier Analysis (SFA). The gap between the most efficient and least efficient region has decreased by 34% across the study. An often made assumption of constant returns to scale may not be appropriate for IAU of regions. The elasticity of capital and labor are calculated at 0.376 and 0.530 respectively indicating diminishing returns to scale. In IAU, TFP growth stems from both improved technical efficiency and technological progress. TFP growth accounts for 84.2% of all growth in output. Just over 31% of the regions output growth IAU has experienced between 2006 and 2009 is the result of advancement in the production frontier.

DETERMINAN PRODUKTIVITAS LAHAN PERTANIAN SUBSEKTOR TANAMAN PANGAN DI INDONESIA

This study is aimed to analyze the determinant factors affecting the agricultural land productivity of food crops sub-sectors in 25 provinces in Indonesia during the period of 2005-2009. Descriptive analysis is done to describe the agricultural land productivity of food crops sub-sectors in Indonesia. The Cobb-Douglas production function with the assumption of Constant Return to Scale on the food crops sub-sectors production is applied. To solve the heteroschedasticity problems and avoid the auto-correlation, then the Generalized Least Square estimator with Cross-Section Weight is done.The result shows that labors and fertilizer are two factors that do not affect significantly to the productivity of food crops sub-sectors; while capital, research, human resources and irrigation are factors that affect positively to the agricultural land productivity of food crops sub-sectors. The study also shows Java as the area with the highest level of productivity and Maluku has the lowest level of productivity.

Prediction of A CRS Frontier Function and A Transformation Function for A CCR DEA Using EMBEDED PCA

Data Envelopment Analysis is a nonparametric tool for measuring the performance of a number of homogenous Decision Making Units. In this paper, Principal Component Analysis is used as an alternative tool to estimate the frontier in a Data Envelopment Analysis under the assumption of Constant Return to Scale. Apart from this, in the context of a multiple inputs and single output, a transformation function, is developed here using the Most Productive Scale Size condition stated by Starrett. This function complies with all postulates of a frontier function and is very similar to the formula given by Aigner and Chu. Moreover, it is capable of defining the threshold value for any resource.

Transportation–Communication Capital and Economic Growth: A VECM Analysis for Turkey

This paper analyses the short- and long-term relationships between the transportation–communication capital and the output for Turkey. The study applies a Cobb–Douglas production function under the assumption of constant returns to scale and employs co-integration analysis by estimating a vector error correction model (VECM). As a result of the VECM estimation, one co-integrating relationship is detected. The results based on the impulse response function analysis imply that per labour transportation–communication capital appears both to have been a crucial input in the Turkish productive process and to have had a positive crowding in effect on the per labour non-residential total capital formation. Moreover, the results support the argument that the transportation–communication capital has a lagged impact on economic growth. The long-term accumulated elasticity of output to transportation–communication capital has been found to be 0.59. The long-term accumulated marginal product was also calculated. It implies that a 1 Turkish Lira increase in per labour transportation–communication capital results in a long-term rise of 1.45 Turkish Liras in per labour output. All these findings suggest that transportation–communication capital may be a powerful tool for policy-makers to promote long-term per labour real output growth in Turkey.

Linear programming solutions and distance functions under α-returns toscale

This note generalizes analytical relationships among activity variables of Dataenvelopment analysis models previously derived in a previous article by theauthors of this note. We relax the assumption of constant returns to scale byshowing that the key results hold under a weaker assumption of homogeneity. Weuse the notion of α-returns to scale to extend the analysis tostrictly increasing and decreasing returns, covering now the whole range ofreturns to scale for multi-output homogenous technologies.

Professor Samuelson on Sraffa and the classical economists

In this article, part of an ongoing discussion, Samuelson (2000) is taken as the occasion for a critical examination of Samuelson's work on the classical economists and Sraffa, a subject of continuing interest for that author, especially after Sraffa (1960). The article argues for the existence in Smith and Ricardo of an alternative approach to distribution and prices, and it aims at a critique of Samuelson's contention that ‘Smith, Ricardo and J.S. Mill used essentially the same logical paradigm as did Walras and Arrow Debreu’ (2000: 140). In the first two sections, the attempt by Arrow (1991) to detect in Ricardo a theory of prices independent of demand—and founded instead on a real wage determined separately from, though not necessarily independently of, prices and the non-wage distributive variables—is considered with its implication of the wage entering the determination of the latter as an ‘intermediate datum’ of the theory. This then makes it possible to outline the characteristic analysis we find in Smith and Ricardo, where the wage as ‘intermediate datum’ entails a similar treatment of the output levels. The resulting theoretical structure is then used in order to answer, in sections III and IV, the two basic criticism, that Samuelson has advanced against Sraffa (1960). While the claimed dependence of the (1960) prices on an assumption of constant returns is voided by the mentioned treatment of outputs as intermediate data, the relevance of the Standard commodity, as well as that of Ricardo's ‘invariable measure of value’ is explained by the needs of determining non-wage incomes as a difference or ‘residual’, the essence of the theoretical structure under consideration. Section V then deals more directly with Samuelson's denial of the existence of a classical paradigm of economic theory. His arguments and interpretations are found to be in contrast with central features of Smith and Ricardo's work and, in particular, with their theory of wages. Thus, the admission of labour unemployment in ‘normal’ competitive positions compels Samuelson to a highly questionable interpretation of the chapter ‘On Machinery’ in Ricardo's Principles. In section VI, finally, the attribution to ‘Sraffian literature’ of a central concern for what Samuelson sees as ‘steady states’, but are in fact the traditional ‘normal positions’ of the economy leads the article to the deficiencies of neoclassical theory—an issue inevitably underlying the debate on the Classical paradigm. The dependence of the traditional versions of the theory, based on normal positions, on the notion of capital as a single magnitude—which forced the generalized abandonment of those versions in pure theory after the early stages of the capital controversies—is argued to emerge as equally present in the contemporary reformulations of the theory, thus affecting them, it is argued, no less than it did the abandoned earlier versions.

Sraffa and the Assumption of Constant Returns to Scale: A Critique of Samuelson and Etula

In a recent paper Samuelson and Etula claim to have provided three examples of the presence of a constant returns to scale assumption in Sraffa's Production of Commodities. The present paper is a refutation of their interpretation of Sraffa's propositions. It shows that they mistakenly take Sraffa's logical propositions for empirical propositions. This article also provides evidence to refute Samuelson's hypothesis that Sraffa consistently confused the concept of Marshallian “constant cost” with the general equilibrium concept of “constant returns to scale”. The paper also argues that Sraffa's prices are not necessarily “equilibrium” prices, and that it is not true that Sraffa maintained that changes in demand had no impact on prices; his position appears rather to be that the impact of demand on prices is unpredictable.

Estimating Productivity When Primal and Dual TFP Accounting Fail: An Illustration Using Singapore's Industries

Abstract For both primal and dual TFP growth accounting to properly account for productivity growth, assumptions of constant returns to scale and perfect competition are necessary. This paper shows that without these assumptions, while both TFP growth accounting measures remain equal if factor shares are constant, they are also equally bad at measuring productivity growth. This paper proposes a structural regression to estimate productivity growth based on more general production and cost functions. Using Singapore's industries as illustrations, this paper finds that the assumptions are widely rejected, and the estimated productivity growth exceeds both the accounting measures. When the same methodology is applied to the aggregate Singapore data, the estimated productivity growth is 4.4 percent per year, significantly higher than that of Young's (1992) and Hsieh's (2002).

Growth-business cycle interaction: A look at the OECD

This paper examines the relationship between long-run growth and business cycles in the Organization for Economic Co-operation and Development (OECD). The model in the paper specifically assumes that the business cycle influences growth through total factor productivity. Using unconditional volatility to measure the business cycle, this paper finds a negative relationship between the business cycle and long-run growth even after controlling for endogeneity. The result is robust to the inclusion of either period or country dummy variables, but not both. Therefore, the result is somewhat fragile. Finally, the assumption of constant returns to scale is consistent with the data.

Sraffa's Legacy in Economics: Some Critical Notes

On the basis of a specific methodology attributed to Sraffa, I present a critical assessment of certain conflicting positions that characterize the book Critical Essays on Piero Sraffa's Legacy in Economics (ed. H. Kurz, 2000). A criticism is addressed to Samuelson's view according to which the assumption of constant returns is an essential ingredient of Sraffa's theory of prices. It is argued that the defence against Samuelson's attack from the Sraffian side could be strengthened following the above methodology and a certain neoclassical literature. Some questions are raised about the constructive scope of the theoretical work developed along the guidelines of Sraffa's book.

Reemployment Probabilities and Returns to Matching

The assumption of constant returns in the matching function, embodied in most bilateral search models, is crucial to ensure the uniqueness of the unemployment rate along a steady‐state growth path. This article explores the empirical viability of this assumption by estimating individual reemployment probabilities on a sample of unemployment entrants. I apply hazard models to survey data on both completed and uncompleted unemployment durations. The hypothesis of constant returns to matching is not rejected, on the basis of the evidence that the job‐finding hazard depends only on local labor market tightness and is independent of its size.

Measuring Technical Change Under Variable Returns to Scale: A Dual Approach

In this paper, a dual measure of technical change is developed. The measure does not require parametric specification or estimation of the underlying technology, nor the assumptions of constant returns to scale and perfect competition. Imposing these assumptions, the proposed measure is shown to be equivalent to Solow’s productivity residual. Biases attributable to these assumptions are analysed.

Treatment costs, equilibrium, and the allocation of patiens to therapy alternatives

This paper addresses the problem of increasing costs (or decreasing returns) in the treatment of patients within health care systems. We examine the implications of such a situation for (1) the allocation of patients to alternative drug therapies within a disease area; and (2) the proportions of patients being treated within the disease area to the total patient population as a function of the equilibrium conditions for maximized health care outcomes, given alternative assumptions about the existence of budget constraints on the resources allocated to the disease area. The reason for considering these issues (in this case, from a purely theoretical perspective) is that such a model and the assumptions that drive it stand in marked contrast to those underlying (implicitly if not explicitly) the traditional approach to cost-effectiveness modeling. In traditional cost-effectiveness analysis, the assumption is that costs and outcomes exhibit constant returns to scale and that the process of patient selection and the characteristics of the treating population and not be taken into account. However, our analysis demonstrates that once the assumption of constant returns is abandoned, any assessment of the net impact of therapeutic interventions can be made only within an equilibrium, or comparative static, framework that is subject to budget constraints and in which the cost functions that drive patterns of switching between therapies are specified. Under such conditions, the traditional, clinical-trial—based notion of cost-effectiveness loses all meaning

Demande optimale de facteurs et coûts d'ajustement croisés

We develop a capital and labor demand model with interrelated adjustement costs. The adjustement costs will simultaneously bear on investment and labor; moreover we shall not suppose any separability assumption on the different kinds of adjustment costs. Investment adjustment costs will thus also depend on hiring. Such a specification will allow us to account for the interactions between the different factors demands. Under the assumption of constant return to scale, we shall then show that the knowledge of the avarage q does not enable us to determine the investment rate.

The Sensitivity of Productivity Growth Measures to Alternative Structural and Behavioral Assumptions: An Application to Electric Utilities 1951–1984

This article examines the sensitivity of three alternative multifactor productivity growth estimates for the electric-utility industry during the 1951–1984 period. The results indicate that multifactor productivity growth estimates are quite sensitive to the relaxation of various structural and behavioral assumptions. First, a benchmark measure is constructed along the lines suggested by Solow (1957). This “residual” approach produces estimates that suggest a substantial decline in firm-level productivity growth after the mid-1960s. Prior to obtaining the second and third estimates, empirical tests of the structural and behavioral assumptions underlying a firm's operation are conducted. First, the structural assumption of constant returns to scale is rejected, and the resulting long-run scale-adjusted multifactor productivity growth estimates are found to be consistently less than the residual estimates. Second, the behavioral assumption of long-run equilibrium is rejected. Comparing the long-run scale-ad...