Production under a quota system: an extension of the weighted additive model to assess technical efficiency

Abstract

Since it was introduced, data envelopment analysis (DEA) has been applied to many different areas and has also been extended to numerous production contexts. In this paper, we focus our attention on the production framework under output quotas. Many types of markets throughout the world are subject to intervention by government policies, with the purpose of raising the prices that producers receive for their products through the imposition of production quotas. In this paper, we introduce a comprehensive approach based upon the extension of the weighted additive model in DEA with the aim of measuring technical inefficiency of firms producing under a quota system. Accordingly, we prove several interesting properties of the new approach and compare it with the conventional weighted additive model. The paper concludes by considering a case study that analyses milk production inefficiency in Canadian provinces, incorporating information on the quota assigned to each of the provinces