Technology-Based Total Factor Productivity and Benchmarking: New Proposals and an Application

Abstract

The present study fills a gap between the benchmarking literature and multi-output based efficiency and productivity studies by proposing a benchmarking framework to analyze total factor productivity (TFP). Different specifications of the Hicks-Moorsteen TFP index are tailored for specific benchmarking perspectives: (1) static, (2) fixed base and unit, and (3) dynamic TFP change. These approaches assume fixed units and/or base technologies as benchmarks. In contrast to most technology-based productivity indices, the standard Hicks-Moorsteen index always leads to feasible results. Through these specifications, managers can assess different facets of the firm's strategic choices in comparison with firm-specific relevant benchmarks and thus have a broad background for decision making. An empirical application for the Spanish banking industry between 1998 and 2006 illustrates the managerial implications of the proposed framework.

Keywords: DEA, banking