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

TY - JOUR

T1 - Production with storable and durable inputs

T2 - Nonparametric analysis of intertemporal efficiency

AU - Cherchye, Laurens

AU - De Rock, Bram

AU - Kerstens, Pieter Jan

PY - 2018

Y1 - 2018

N2 - 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.

AB - 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.

KW - Cost minimization

KW - Data envelopment analysis

KW - Dynamic efficiency

KW - Production delay and storage costs

KW - Storable and durable inputs

U2 - 10.1016/j.ejor.2018.04.002

DO - 10.1016/j.ejor.2018.04.002

M3 - Journal article

AN - SCOPUS:85046123470

SN - 0377-2217

VL - 270

SP - 498

EP - 513

JO - European Journal of Operational Research

JF - European Journal of Operational Research

IS - 2

ER -