The measurement of revenue inefficiency over time: An additive perspective

Abstract

In this paper, we measure and decompose revenue inefficiency over time while accounting for all sources of technical inefficiencies. Our proposed decomposition exploits the dual relationship between the weighted additive distance function and revenue inefficiency in Aparicio et al. [1]. With the aid of the Luenberger indicator, we decompose this indicator into productivity change, and overall allocative change components. The importance of such decomposition is that it provides a complete picture of the sources of productivity change, thus obtaining a slack free allocative component. Finally, the model is ap- plied to the French wine sector to illustrate its practicality: we track how revenue inefficiency evolves in French wine regions over the 2004–2013 period, before and after the implementation of Common Market Organization policies in Europe in 2008