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Static efficiency decompositions and capacity utilization: integrating economic and technical capacity notions

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Starting from existing static decompositions of overall economic efficiency on nonparametric production and cost frontiers, this article proposes more comprehensive decompositions including several cost-based notions of capacity utilization. Furthermore, in case prices are lacking, we develop additional decompositions of overall technical efficiency integrating a technical concept of capacity utilization. These new efficiency decompositions provide a link between short and long run economic analysis and, in empirical work, avoid conflating inefficiency and differences in capacity utilization. An empirical analysis using a monthly panel of Chilean hydro-electric power plants illustrates the potential of these decomposition proposals.

Keywords: D24; M21; capacity utilization; efficiency

Document Type: Research Article


Affiliations: 1: Department of Economics,University of Antwerp, Prinsstraat 13Antwerp B-2000, Belgium 2: IESEG School of Management, CNRS-LEM (UMR 8179), 3 rue de la DigueLille F-59000, France 3: Faculty of Economics and Management,Hogeschool-Universiteit Brussels, Stormstraat 2B-1000 Brussels, Belgium

Publication date: November 1, 2012

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