Efficient Frontier via Production Functions and Mechanization

IR

Abstract

This study attempts to reconcile data envelopment analysis (DEA) with the production function approach in economics. We examine not only the inputs of capital and labor, but also the ranges of these inputs in production process steps, and endogenously derive a Leontief production function. The Leontief production functions shift northeasterly owing to mechanization, which is the replacement of labor inputs by capital inputs in some steps. Consequently, we describe the efficient frontier as the convex hull of the Leontief production functions. Furthermore, we consider the possibility of efficient production below the efficient frontier.

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