Superlative approximation of the Luenberger-Hicks-Moorsteen productivity indicator: Theory and application
Research output: Working paper
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.
Original language | English |
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Publisher | Department of Food and Resource Economics, University of Copenhagen |
Number of pages | 23 |
Publication status | Published - 2018 |
Series | IFRO Working Paper |
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Number | 2018/10 |
ID: 219531296