Journal of Productivity Analysis

, Volume 43, Issue 3, pp 259–267 | Cite as

On structural and average technical efficiency

  • Giannis Karagiannis


In this paper we explain the discrepancy between the efficiency of the average production unit and average efficiency by means of a covariance term relating size and technical efficiency and the extent of reallocation inefficiency. We show that, regardless of the degree of reallocation efficiency, the efficiency of the average production unit is lower than average efficiency when either size and efficiency are uncorrelated or larger units are more efficient than smaller ones. If however larger units are less efficient than smaller ones, the efficiency of the average production unit is higher than average efficiency as long as reallocation efficiency prevails. In addition, reallocation efficiency and a zero covariance term are sufficient conditions for the efficiency of the average production unit to be equal to average efficiency.


Structural efficiency Industry efficiency Average production unit 

JEL Classification

D21 D24 



This paper was presented at the Conference in Memory of Professor Lennart Hjalmarsson, hold at Gothenburg, Sweden, Dec. 7–8, 2012. I would like to thank session participants for a constructive and stimulating discussion. Rolf Färe as always provided inspired comments and suggestions. Svante Ylvinger supplied several related materials and Finn Førsund gave useful guidelines that both help me in revising the paper. Last but not least, the paper has benefited of valuable comments from two anonymous referees of this journal.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of MacedoniaThessalonikiGreece

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