The Malmquist productivity index and plant capacity utilisation

This note proposes a new decomposition of the Malmquist productivity index to account for changes in plant capacity utilisation. Using a primal, non-parametric specification of technology, the Malmquist index is decomposed into technical efficiency change, variations in plant capacity utilisation, and frontier shifts. It provides an alternative to the available methods to incorporate capacity utilisation changes in measures of productivity change. The latter are based upon parametric (and, in many cases, dual) technology specifications; moreover, they typically do not allow for technical inefficiency.