Performance analysis: Economic foundations and trends

Abstract

The goal of this monograph is to very concisely outline the economic theory foundations and trends of the field of Efficiency and Productivity Analysis, also sometimes referred to as Performance Analysis. I start with the profit maximization paradigm of mainstream economics, use it to derive a general profit efficiency measure and then present its special cases: revenue maximization and revenue efficiency, cost minimization and cost efficiency. I then consider various types of technical and allocative efficiencies (directional and Shephard's distance functions and related Debreu-Farrell measures as well as non-directional measures of technical efficiency), showing how they fit into or decompose the profit maximization paradigm. I then cast the efficiency and productivity concepts in a dynamic perspective that is frequently used to analyze the productivity changes of economic systems (firms, hospitals, banks, countries, etc.) over time. I conclude this monograph with an overview of major results on aggregation in productivity and efficiency analysis, where the aggregate productivity and efficiency measures are theoretically connected to their individual analogues.