Measuring technical efficiency with panel data: A dual approach

Färe and Lovell (1978) derive Farrell (1957) measures of output and input technical efficiency in terms of a production frontier. Because cost function estimation is often preferable on econometric grounds, we extend these measures to cost frontiers. We obtain bounded dual measures of both types of inefficiency, which are equivalent only under constant returns to scale. Estimates from translog versions of our cost frontiers, using panel data on the airline industry, indicate substantial cardinal and ordinal differences between the two types of efficiency.