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As the most popular measures of technical efficiency, Farrell measures have not been incorporated explicitly in the decomposition of profit efficiency. By synthesizing existing measures of profit efficiency, the paper “A Unifying Framework for Farrell Profit Efficiency Measurement” establishes a general oriented model that includes many existing profit efficiency measures as special cases. Furthermore, the oriented measures generated from this model have consistent meaningful interpretation. This is also perhaps the first time in the literature that the Farrell technical efficiency and allocative efficiency are included as multiplicative components of profit efficiency. A new component is introduced to help decision makers distinguish input changes from output changes in improving profit efficiency.
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Färe et al. (2019) studied this question.
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