Productivity measurement from a reference technology: A distance function approach

An approach to productivity measurement based on distance function measurem ent is developed in this paper. A series of reference technologies are cons tructed by augmenting observed inputs and outputs such that the resulting e ffective netputs are consistent with the weak axiom of profit maximization. Geometric means of year-ahead and year-back distance function values serve as measures of multifactor productivity changes. Both primal measures from the inner bound and dual measures from the outer bound of the reference te chnologies are calculated. Resulting productivity measures are similar to t hose derived using index number approaches but potentially provide greater information regarding the reference technologies.