Efficiency Measurement Approaches and Its Limitations
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Measurements of efficiency as well as the development of its tools are the crucial part of evaluating the performance of producing units? health such as producer, firm and so on. Measurement of efficiency provides us the symptom of producing unit?s health. If it is found that producing units? health is not well , then we can alleviate the problem. In addition, The good health or high performance of producing units will contribute to the consumers. There are various tools of efficiency measurement. The favorable tools are Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA). These tools also have some limitations so that we should employ these tools carefully. For instance, If the analysis is focused on noise effect, such as agricultural production, SFA should be employed. In contrast, If noise effect is not emphasized, such as production of a firm, an organization or government organization , DEA should be introduced . The article will be considered only in the case of time -invariant data or crossectional data.
Keywords: Efficiency Measurement, Nonparametric Approach, Parametric Approach
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