Reference : Capacity utilisation and profitability: A decomposition of short-run profit efficiency
Scientific journals : Article
Business & economic sciences : Economic systems & public economics
http://hdl.handle.net/2268/30593
Capacity utilisation and profitability: A decomposition of short-run profit efficiency
English
Coelli, Tim [ > > ]
Grifell-Tatjé, Emili [ > > ]
Perelman, Sergio mailto [Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Economie publique appliquée >]
2002
International Journal of Production Economics
Elsevier Science
79
261-278
Yes (verified by ORBi)
International
0925-5273
Amsterdam
The Netherlands
[en] Capacity Utilisation ; Profit decomposition ; Profitability ; Technical Efficiency ; Allocative Efficiency
[en] The principal aim of this paper is to measure the amount by which the profit of a multi-input, multi-output firm
deviates from maximum short-run profit, and then to decompose this profit gap into components that are of practical
use to managers. In particular, our interest is in the measurement of the contribution of unused capacity, along with
measures of technical inefficiency, and allocative inefficiency, in this profit gap. We survey existing definitions of
capacity and, after discussing their shortcomings, we propose a new ray economic capacity measure that involves shortrun
profit maximisation, with the output mix held constant. We go on to describe how the gap between observed profit
and maximum profit can be calculated and decomposed using linear programming methods. The paper concludes with
an empirical illustration, involving data on 28 international airline companies. The empirical results indicate that these
airline companies achieve profit levels which are on average US$815m below potential levels, and that 70% of the gap
may be attributed to unused capacity.
Centre de Recherche en Économie Publique et de la Population - C.R.E.P.P
http://hdl.handle.net/2268/30593

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