The Malmquist Productivity Index and Plant Capacity Utilization

Abstract

A new decomposition of the Malmquist productivity index is proposed to account for changes in plant capacity utilization. Using a primal, non‐parametric specification of technology, the Malmquist index is decomposed into technical efficiency change, variations in plant capacity utilization and frontier shifts. It provides an alternative to the available methods of incorporating capacity utilization changes into measures of productivity change. Such measures are based on parametric (and, in many cases, dual) technology specifications; moreover, they typically do not allow for technical inefficiency. JEL Classification C61; D24

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