An Introduction to Efficiency and Productivity Analysis

This book is concerned with measuring the performance of firms, which convert inputs into outputs. An example of a firm is a shirt factory that uses materials, labour and capital (inputs) to produce shirts (output). The performance of this factory can be defined in many ways. A natural measure of performance is a productivity ratio: the ratio of outputs to inputs, where larger values of this ratio are associated with better performance. Performance is a relative concept. For example, the performance of the factory in 2004 could be measured relative to its 2003 performance or it could be measured relative to the performance of another factory in 2004, etc.