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Technical Efficiency, Allocative Efficiency and Profitability in Hungarian Small and Medium-Sized Enterprises: A Model with Frontier Functions

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By applying a simple model of frontier production functions, this article shows that Hungarian small and medium-sized enterprises (SMEs) produce far below their feasible level, given their input endowment. The SMEs' under-production is rooted in the allocative inefficiency of small and medium-sized firms: they use labour in excess while they lack a sufficient level of capital assets. As a consequence of large inefficiencies, Hungarian SMEs improve profitability by scaling down production rather than by expansion.

Document Type: Research Article


Affiliations: Institute of Economics, The Hungarian Academy of Sciences, Budapest

Publication date: October 1, 2008

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