Input Aggregation and Firm Efficiency

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Technical efficiencies calculated using aggregated inputs are biased. It is shown empirically and analytically that input aggregation decreases calculated technical efficiencies and changes relative technical efficiencies among firms. Moreover, aggregation fails to separate technical efficiency effects from allocative efficiency effects. Thus, the calculated efficiencies are more properly economic efficiencies.
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1989-06
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Charles H. Dyson School of Applied Economics and Management, Cornell University
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