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Production with storable and durable inputs: Nonparametric analysis of intertemporal efficiency

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Laurens Cherchye, Bram De Rock, Pieter Jan Kerstens

We propose a nonparametric methodology for intertemporal production analysis that accounts for durable as well as storable inputs. Durable inputs contribute to the production outputs in multiple consecutive periods. Storable inputs are non-durable and can be stored in inventories for use in future periods. We explicitly model the possibility that firms use several vintages of the durable inputs, i.e. they invest in new durables and scrap older durables over time. Furthermore, we allow for production delays of durable inputs and storage costs for storable inputs. We characterize production behavior that is dynamically cost efficient, which allows us to evaluate the efficiency of observed production decisions. For cost inefficient behavior, we propose a measure to quantify the degree of inefficiency. An attractive feature of this measure is that it can be decomposed in period-specific cost inefficiencies. We demonstrate the usefulness of our methodology through an application to the Italian manufacturing sector of fabricated metal products over the period 1995–2007 drawn from the AMADEUS dataset.

Original languageEnglish
JournalEuropean Journal of Operational Research
Volume270
Issue number2
Pages (from-to)498-513
Number of pages16
ISSN0377-2217
DOIs
Publication statusPublished - Oct 2018

    Research areas

  • Cost minimization, Data envelopment analysis, Dynamic efficiency, Production delay and storage costs, Storable and durable inputs

ID: 197685800