Data Envelopment Analysis as a Complement to Marginal Analysis

The consideration in the present study is mainly conceptual. The objective is to showhow Data Envelopment Analysis (DEA) can be used to reveal the true input-output relationsin an industry. In the estimation of a production function it is assumed that allfirms use the existing technology efficiently. However, in the real world the observedfirms produce homogeneous outputs with differences in factor intensities and in managerialcapacity. Hence, inefficiencies are hidden in the estimated production functions.In order to overcome this drawback of the parametric approach and to reveal the truenature of the input-output relations in production, given the available technology, theDEA approach is applied. In this study DEA is applied in order to select the farms thatutilize efficiently the existing technology, allowing the estimation of a production functionthat reveals the true input-output relations in sheep-goat farming, using farm accountingdata from a sample of 108 sheep-goat farms.