The choice of a technical efficiency measure on the free disposal hull reference technology: A comparison using US banking data

This paper evaluates a variety of technical efficiency measures based on a given nonparametric reference technology, the free disposal hull (FDH), Specifically, we consider the radial measure of Debreu (1951)/Farrell (1957) and the nonradial measures of Fare (1975), Fare and Lovell (1978) and Zieschang (1984). Furthermore, input-based, output-based, and graph efficiency versions of these four measures are computed. Theoretical consideration as to the best choice among these alternative measures is inconclusive; therefore, we examine this problem from an empirical viewpoint. Calculating thirteen different measures of technical efficiency for a sample of US banks, we compare the measures' efficiency distributions and rankings, paying particular attention to how well the radial measure approximates its nonradial alternatives. (C) 1998 Elsevier Science B.V.