ABSTRACT
This chapter sets up a framework for measuring productive efficiency and establishes the frontier production function model as the basic analytical tool for underlying the empirical research. It analyses the range of econometric or parametric frontier models that operationalise the conceptual model and examines several estimation techniques applicable to the frontier model. One of the main types of performance measure is the frontier approach which is in widespread use. The basic concept of the frontier model is derived from production function theory. A production function can be expressed as an attempt at mathematically specifying the range of technical possibilities available to producers. The returns to scale of a production function indicate what happens to output when all units are increased proportionately. An analytical approach to efficiency measurement in production was, however, initiated by G. Debreu and later utilised by M. Farrell. In the Farrell framework, overall efficiency consists of two different components: allocative efficiency and productive efficiency.
