European Journal of Operational Research 289 (2021) 328–337

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European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Interfaces with Other Disciplines

Dual productivity analysis: A Konüs/Shephard approach

E. Grifell-Tatjé a, C. A. K. Lovell b,∗
a
Universitat Autònoma de Barcelona Spain
b
University of Queensland Australia

a r t i c l e i n f o a b s t r a c t

Article history: A primal (or direct) productivity index is conventionally defined as the ratio of an output quantity in-
Received 6 November 2019 dex to an input quantity index. There have been attempts in the literature to define and implement dual
Accepted 23 June 2020
and indirect productivity indexes based on price changes rather than quantity changes. Although dual
Available online 27 June 2020
and indirect productivity indexes share a common motivation, the measurement of productivity change
JEL Codes: when prices are easier to measure, or are measured more accurately, than quantities, they differ ana-
D24 lytically, from one another and from primal productivity indexes. We introduce a new dual productivity
D33 index, inspired by contributions of Konüs and Shephard, and we compare our dual productivity index
with a primal productivity index inspired by the work of Malmquist. We also compare these two theo-
Keywords:
retical productivity indexes with an analogous pair of empirical Fisher productivity indexes. We provide
Dual and primal productivity indexes
an empirical application to US agricultural productivity growth.
Price distance functions
Agricultural productivity © 2020 Elsevier B.V. All rights reserved.
Data envelopment analysis

1. Introduction
In his post-war review of US productivity trends, Evans (1947;
221–222) stressed not just the magnitude of productivity changes
but also their economic significance, reporting that workers had
enjoyed the fruits of productivity growth (which he called tech-
nical progress) through wage increases and price declines. Soon
thereafter Davis (1955; Chs. 1,5), whose interest centered on the
performance of an individual business rather than that of an aggre-
gate economy, argued that business productivity growth benefits
customers through lower prices, labor and suppliers of materials
through higher remuneration, and owners of the business through
higher retained earnings.1 In his monumental study of productiv-
ity trends in the US economy in the first half of the 20th century,
Kendrick (1961; 111) echoed the issues raised by Evans and Davis,
noting that “[i]f productivity advances, wage rates and capital re-
turn necessarily rise in relation to the general product price level,
since this is the means whereby the fruits of productivity gains are
distributed to workers and investors by the market mechanism.”
Kendrick illustrated his claim by calculating productivity growth in
the US economy over various time periods using the ratio of total
∗
Corresponding author at: School of Economics, University of Queensland, Bris-
bane, QLD 4072, Australia.
E-mail addresses: emili.grifell@uab.cat (E. Grifell-Tatjé), k.lovell@uq.edu.au
(C.A.K. Lovell).
1
Davis also emphasized the generation and distribution of non-pecuniary bene-
fits such as improved product quality and improved working conditions.
factor price and average product price. Returning to the level of an
individual business, Eldor and Sudit (1981) analysed the distribu-
tion of productivity gains among consumers, workers and owners
at “a major corporation”. This early awareness of the distributional
implications of productivity change, at both business and aggre-
gate levels, and the emphasis of Kendrick on necessity, suggest the
possibility of using price changes rather than quantity changes to
measure productivity change.
Fourastié (1957, 1959) was among the first to infer productiv-
ity change from price changes. Noting that both the objective and
the result of productivity growth were to “…bring down selling
prices and consequently speed up social progress and more par-
ticularly raise living standards and the purchasing power of wages
and salaries,” (1957; 12) Fourastié developed a crude mathematical
model in which productivity was expressed as the ratio of labour’s
wage to product price, assuming that the quantities of all other in-
puts could be expressed in terms of labor hours. He proceeded to
argue that in some circumstances prices are easier to measure than
quantities, especially at the aggregate level and over long time pe-
riods, and he provided a variety of empirical applications in which
he used changes in labour’s wage and product prices to estimate
productivity change. Fourastié referred to the use of price changes
to measure productivity change as the “indirect” approach to pro-
ductivity measurement.
Eventually analysis began complementing intuition and evi-
dence, beginning with Siegel (1955; 53), who was the first to state
conditions under which a price-based productivity index coincides
with a quantity-based productivity index. Arguing that the impact

https://doi.org/10.1016/j.ejor.2020.06.037
0377-2217/© 2020 Elsevier B.V. All rights reserved.
 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337
of productivity growth “…is to make output cheap compared to
input…” led him to refine Fourastié’s approach by defining an in-
direct productivity index as the ratio of a cost index to a product
price index. Later Siegel (1961; 27) was more analytically precise,
showing that (i) if the product test is satisfied for outputs, so that
Y × P = V, with Y and P indicating quantity and price indexes for
output, and V indicating a “value index” for output, by which he
meant revenue change Rt+1 /Rt ; and (ii) if the product test is satis-
fied for inputs, so that X × W = U, with X and W indicating quantity
and price indexes for input, and U indicating a “value index” for in-
put, by which he meant cost change Ct+1 /Ct ; then PY/WX = V/U, in
which PY/WX is profitability change, or Georgescu-Roegen’s (1951)
“return to the dollar”. Additionally if Rt = Ct , t = 0,1, it follows that
V = U, and consequently a price-based productivity index W/P co-
incides with a quantity-based productivity index Y/X. Siegel illus-
trated this result with a Paasche dual productivity index WP /PP and
a Laspeyres primal productivity index YL /XL . This final assertion is
correct, although we show below that, conditional on satisfaction
of the two product tests, a zero profit condition Rt = Ct , t = 0,1, is
sufficient but not necessary for Rt+1 /Rt = Ct+1 /Ct , and consequently
for equality of dual and primal productivity indexes. The historical
development and decomposition of profitability change into pro-
ductivity change and price recovery change (the reciprocal of W/P)
is detailed in Grifell-Tatjé and Lovell (2015; Chs. 2,3).2
More recently Aiyar and Dalgaard (2005) and Fernald and
Neiman (2011), Hsieh (2002), Roeger (1995), Shapiro (1987) have
spawned a rapidly growing literature that uses price changes to
estimate productivity change, primarily in the context of uncov-
ering the sources of economic growth. Hsieh’s motivation arose
from anomalies he uncovered in previous research into the growth
experience of East Asian countries, Singapore in particular. The
methodology underlying this literature is dual productivity ac-
counting, as proposed by Jorgenson and Griliches (1967), in which
primal productivity change is estimated as the revenue share-
weighted sum of the rates of change of output quantities minus (or
divided by) the cost share-weighted sum of the rates of change of
input quantities, and dual productivity change is estimated as the
cost share-weighted sum of the rates of change of input prices mi-
nus (or divided by) the revenue share-weighted sum of the rates
of change of output prices. In the Jorgenson and Griliches set-up
the accounting identity forces equality between revenue and ex-
penditure in each period, and thus between primal and dual mea-
sures of productivity change. However the principal finding of the
subsequent empirical literature cited above is that primal and dual
estimates of productivity change can and do differ, because the
accounting identity can and does break down for a number of
reasons. Hsieh mentions four potential sources of divergence: im-
perfect competition, short-run adjustment costs, omitted or mis-
measured inputs (or outputs; Hsieh’s model has a single aggregate
output), and inconsistencies between the sources of quantity and
price data. Fernald and Neiman add another potential source of di-
vergence: heterogeneous tax treatment and capital subsidies aris-
ing from government policy interventions.
Our dual approach is similar in spirit, but different in assump-
tions, from the dual productivity accounting approach developed
by Jorgenson and Griliches. An important assumption underpinning
the productivity accounting approach is that producers optimize,
with marginal rates of input substitution equaling input price ra-
tios and marginal rates of output transformation equaling output
price ratios. This equilibrium assumption justifies replacement of
theoretical but unobservable input and output production elastici-
ties with observable input cost shares and output revenue shares.
2
A special case of a price recovery index is a terms of trade index, the ratio of
an export price index to an import price index.
329
In contrast, although our dual approach also requires quantity data,
the quantity data are not linked to an assumption of optimizing
behavior, being based on distance functions rather than minimum
cost and maximum revenue functions.
Our dual approach also differs from an indirect approach de-
veloped by Shephard (1974) and extended to indirect productivity
measurement by Färe, Grosskopf, and Lovell (1992) and Färe and
Grosskopf (1994). Whereas our approach is simultaneously output-
and input-oriented, Shephard’s indirect approach has a single ori-
entation, either a cost-constrained output (or revenue) maximiza-
tion orientation in which output quantities are the choice vari-
ables, or a revenue-constrained input (or cost) minimization ori-
entation, in which input quantities are the choice variables. It
is based on distance functions defined on either output quan-
tity and cost-deflated input price space or input quantity and
revenue-deflated output price space, and so it requires quantity
information. However as a distance function based approach, it
does not require an assumption of optimizing behavior, and per-
haps consequently the cost-constrained output maximization ori-
entation has proved particularly useful for analyzing performance
in the provision of public services such as education and health
care, in which output prices are missing or heavily subsidized and
budgets (rather than resources) are wholly or partly allocated by
agencies.
Our dual approach is inspired by the Konüs (1924) cost of liv-
ing index, the ratio of the minimum cost of producing a given
output quantity vector at two different input price vectors. In this
set-up input prices are exogenous, and the choice variables are in-
put quantities. We then exploit Shephard’s (1970) interpretation of
a (minimum) cost function as a distance function in input price
space. This insight leads to a re-interpretation of the Konüs cost
of living index as an input price index, in which output quantities
are exogenous and input prices are the choice variables. Konüs did
not consider the output side of the production relation, but Shep-
hard did, re-interpreting a (maximum) revenue function as a dis-
tance function in output price space. This re-interpretation enables
us to define the ratio of the maximum revenue obtainable from a
given input quantity vector at two different output price vectors
as an output price index, in which output prices are the choice
variables. Finally, our Konüs-Shephard dual productivity index is
defined as the ratio of the input price index to the output price
index, with its reciprocal defining a price recovery index. This dual
productivity index is consistent with the interpretations of produc-
tivity change appearing in the quotes of Kendrick and, especially,
Siegel (1955) above.
The rest of our paper is structured as follows. In Section 2 we
develop our dual productivity index. In Section 3 we relate our
dual productivity index to a primal productivity index based on
the work of Malmquist (1953) in a consumer context, as trans-
ferred to a producer context by Diewert (1992; 348) and Bjurek
(1996; 308). In contrast to Jorgenson and Griliches (1967; 252),
who note that their dual and primal productivity indexes “…are
dual to each other and are equivalent…”, we find no general equiv-
alence between our Konüs-Shephard dual productivity index and a
Malmquist primal productivity index. Equivalence requires satisfac-
tion of the product test for cost change and revenue change, a test
not satisfied by most index number pairs, including those contain-
ing our dual price indexes. In our analytical framework satisfaction
of the product test requires the input and output price mixes and
the input and output quantity mixes to vary in offsetting ways, a
razor’s edge condition that is unlikely to be satisfied in any em-
pirical setting. In our setting we find violations of this condition,
but they are relatively minor. In Section 4 we develop a procedure
with which to implement our dual productivity index with time
series data rather than panel data. In Section 5 we describe our
time series data set, which consists of price indexes and implicit
330 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337

quantity indexes for three inputs and three outputs in US agricul- Next we use the dual input price distance function to define
ture over the 68 year period 1948–2015, and we report our em- a dual input price index, which we then use to decompose cost
pirical findings. We find estimated productivity growth based on change. We define a Konüs base period dual input price index as
our Konüs-Shephard dual productivity index to differ from an es- 
timate based on a primal Malmquist productivity index, although  D0w y0 , w1
WK0 0 1
y ,w ,w 0
=  , (3)
the two are very close and do not differ in a statistically signif- Dw y0 , w 0
0

icant sense, and they bound estimates of the US Department of

Agriculture based on a Fisher productivity index. Section 6 con- which is non-negative, non-decreasing and homogeneous of degree
cludes with a summary of our findings and a suggestion for future zero in w. Superscripts indicate time periods.
research. We use WK0 (y0 , w1 , w0 ) to decompose cost change, beginning
with

2. Analytical foundations C1  
= WK0 y0 , w1 , w0 × X I0 y0 , x1 , x0 , w1 , w0 , (4)
C0
We follow Shephard (1970) to develop a dual input price in-
in which X I0 (y0 , x1 , x0 , w1 , w0 ) is a base period implicit input
dex that we use to decompose cost change in Section 2.1, and to
quantity index. Transferring a strategy employed by Grifell-Tatjé
develop a dual output price index that we use to decompose rev-
and Lovell (2015, 2016) from quantity space to price space, we de-
enue change in Section 2.2, following similar procedures. A dual
compose X I0 (y0 , x1 , x0 , w1 , w0 ) as follows
productivity index is defined as the ratio of the two dual price in-
dexes, and is the reciprocal of a price recovery index, which we  C 1 /C 0
use to decompose profitability change in Section 2.3. The decom- X I 0 y0 , x1 , x0 , w1 , w0 = 
WK y0 , w1 , w0
0
positions of cost change, revenue change and profitability change 
are essential to uncovering the relationship between dual and pri- w 1T x1 x0T w1 D0w y0 , w0
mal productivity indexes. = 1 T 0
× 0T 0 × 
w x x w D0w y0 , w1
We use the following notation: y ∈ RM N
+ and x ∈ R+ are quantity 
vectors of outputs and inputs, the prices of which are p ∈ RM + and = XP × W SL y0 , x0 , w1 , w0 (5)
w ∈ RN + . The production set T = {(x,y): x can produce y} is closed,
bounded and satisfies weak disposability of x and y. Input sets are in which XP = w1T x1 /w1T x0 is a Paasche input quantity index and
L(y) = {x: (y,x) ∈ T}, y ∈ RM + , and output sets are P(x) = {y: (x,y) ∈
 
T}, x ∈ RN + . Input distance functions Di (y,x) = maxλ {λ: (x/λ) ∈ L(y)},  x0T w1 /D0w y0 , w1 >
y ∈ RM > W SL y0 , x0 , w1 , w0 =
  1 (6)
+ , are homogeneous of degree +1 in x, with Di (y,x) =1 if x0T w0 /Dw y0 , w0 0 <
and only if x ∈ L(y). The cost function c(y,w) = minx {wT x: Di (y,x)
>1} is homogeneous of degree +1 in w. Output distance functions
= is a Shephard-Laspeyres input price mix index with input prices w1
Do (x,y) = minθ {θ : (y/θ ) ∈ P(x)}, x ∈ RN+ , are homogeneous of degree and w0 radially expanded or contracted to Shephard’s efficient sub-
+1 in y, with Do (x,y) < =1 if and only if y ∈ P(x). The revenue func- set of L(y0 ). This index evaluates the impact on cost of a change in
tion r(x,p) = maxy {pT y: Do (x,y) <=1} is homogeneous of degree +1 in the input price mix from w0 to w1 . If base period input quantities
p. are less (more) expensive when evaluated at efficient base period
input prices than at efficient comparison period input prices, then
2.1. A dual input price index and the decomposition of cost change W SL (y0 , x0 , w1 , w0 ) > (< ) 1. Since D0w (y,w) is homogeneous of de-
gree +1 in w, the input price mix index W SL (y0 , x0 , w1 , w0 ) has a
Shephard (1970; Chapter 5) introduced the cost structure of value of unity, and makes no contribution to cost change, if, and
production technology, defined as the family of subsets of w ∈ RN
+ only if, w1 = λw0 , λ > 0, i.e. if and only if the input price mix is
given by unchanged from base period to comparison period.
  Inserting (5) into (4) generates a base period decomposition of
L(y ) = w : c (y, w ) > >
= 1, w = 0 , (1) cost change
in which the cost function c(y,w) is a distance function for the cost C1  
structure L(y ). L(y ) inherits its properties from those of the pro- = WK0 y0 , w1 , w0 × XP × W SL y0 , x0 , w1 , w0 . (7)
C0
duction technology, and we follow Shephard by assuming L(y ) sat-
isfies disposability, closure and convexity properties. Shephard de- Thus cost change can be expressed as the product of a Konüs
fined an input price vector w ∈ L(y ) as efficient if and only if it base period dual input price index WK0 (y0 , w1 , w0 ), a Paasche input
belongs to the efficient subset of L(y ) for which c(y,w’) < 1 ∀ w’ quantity index XP , and a Shephard-Laspeyres input price mix index
≤ w. W SL (y0 , x0 , w1 , w0 ). WK0 (y0 , w1 , w0 ) and XP satisfy the product test
Since c(y,w) is a distance function in input price space, and to with C1 /C0 if, and only if, W SL (y0 , x0 , w1 , w0 ) = 1. Otherwise cost
preserve notational consistency with a primal input quantity dis- change has three drivers.
tance function Di (y,x), we change notation and define a dual input It is straightforward to repeat the foregoing analysis using a
price distance function on L(y ) as Konüs comparison period dual input price index
  w  
Dw (y, w ) = maxδ δ : c y, > 1, w > 0 , (2)
 D1w y1 , w1
δ = = WK1 y1 , w1 , w0 =  , (8)
Dw y1 , w 0
1

which seeks the maximum radial reduction in w such that c(y,w) > =
1. Färe (1984) defined a measure of input price efficiency as the ra- which generates the cost change decomposition
dial distance of an input price vector to Shephard’s efficient subset
C1  
of L(y ) given by Fw (y, w ) = minγ {γ : γ w ∈ L(y )} = 1/Dw (y, w ). = WK1 y1 , w1 , w0 × X I1 y1 , x1 , x0 , w1 , w0 , (9)
C0
The dual input price distance function Dw (y, w ) has the same prop-
erties as its primal input quantity distance function counterpart in which X I1 (y1 , x1 , x0 , w1 , w0 ) is a comparison period implicit in-
Di (y, x ), with input prices replacing input quantities. put quantity index. This index can be decomposed as
 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337 331

 C 1 /C 0 sets of p ∈ RM
+ given by
X I 1 y1 , x1 , x0 , w1 , w0 =   
WK1 y1 , w1 , w0
 P (x ) = p : r (x, p) < >
= 1, p = 0 . (14)
w0T x1 x1T w 1 D1w y1 , w0
= 0T 0 × 1T 0 ×  P (x ) inherits its properties (disposability, closure and convex-
w x 1 1 1x w Dw y , w ity) from those of the primal production technology, and the pri-
 mal revenue function r(x,p) is a distance function for the revenue
= XL × W SP y1 , x1 , w1 , w0 (10)
structure P (x ).
in which XL = w0T x1 /w0T x0 is a Laspeyres input quantity index and An output price distance function is defined on P (x ) as

    p 
 1 1 1 0 x1T w1 /D1w y1 , w1 < D p (x, p) = min ν : r x, < 1, p > 0 ,
= = (15)
W SP y , x , w , w =
  1 (11) ν ν
1T 0 1 1 0
x w /Dw y , w >
and a radial measure of output price efficiency is defined as
is a Shephard-Paasche input price mix index with input prices w1 Fp (x, p) = 1/D p (x, p). The dual output price distance function
and w0 radially expanded or contracted to Shephard’s efficient sub- D p (x, p) has the same properties as its primal output quantity
set of L(y1 ). This index also evaluates the impact on cost of a counterpart Do (x, y ), with output prices replacing output quanti-
change in the input price mix from w0 to w1 . If comparison pe- ties.
riod inputs are less (more) expensive when evaluated at efficient A Konüs base period dual output price index is defined as
comparison period input prices than at efficient base period input 
prices, then W SP (y1 , x1 , w1 , w0 ) < (> ) 1.  D0p x0 , p1
PK0 x0 , p1 , p0 =  , (16)
Inserting (10) into (9) generates a comparison period cost D p x0 , p0
0
change decomposition
C1   which is non-negative, non-decreasing and homogeneous of degree
0
= WK1 y1 , w1 , w0 × XL × W SP y1 , x1 , w1 , w0 , (12) zero in p.
C
We decompose revenue change as
which states that cost change also can be expressed as the
product of a Konüs comparison period dual input price in- R1  
= PK0 x0 , p1 , p0 × Y I0 x0 , y1 , y0 , p1 , p0 , (17)
dex WK1 (y1 , w1 , w0 ), a Laspeyres input quantity index XL , and a R0
Shephard-Paasche input price mix index W SP (y1 , x1 , w1 , w0 ). Since
in which Y I0 (x0 , y1 , y0 , p1 , p0 ) is a base period implicit output
D1w (y,w) is homogeneous of degree +1 in w, the input price mix in-
quantity index that can be decomposed as
dex has a value of unity if, and only if, the input price mix remains
constant, in which case WK1 (y1 , w1 , w0 ) and XL satisfy the product  R1 /R0
test with C1 /C0 . Y I0 x0 , y1 , y0 , p1 , p0 = 
PK0 x0 , p1 , p0
Taking the geometric mean of (7) and (12) generates the cost 
change decomposition p1T y1 y0T p1 D0p x0 , p0

  1/2 = 1T 0 × 0T 0 × 
C1 p y y p D0p x0 , p1
= WK0 y0 , w1 , w0 × WK1 y1 , w1 , w0 × [XP × XL ]1/2 
C0

  1/2 = YP × P SL x0 , y0 , p1 , p0 , (18)
0 0 1 0 1 1 1 0
× W SL y , x , w , w × W SP y , x , w , w
  in which Yp = p1T y1 / p1T y0 is a Paasche output quantity index and
= WK y1 , y0 , w1 , w0 × XF × W SF y1 , y0 , x1 , x0 , w1 , w0 , (13)

 
which expresses cost change as the product of a Konüs  y0T p1 /D0p x0 , p1 <
dual input price index WK (y1 , y0 , w1 , w0 ), a Fisher input quan-
0 0 1
P SL x , y , p , p 0
=
  1 (19)
y0T p0 /D p x0 , p0 0 >
tity index XF , and a Shephard-Fisher input price mix index
W SF (y1 , y0 , x1 , x0 , w1 , w0 ). Diewert (2018; 6226) has shown that is a Shephard-Laspeyres output price mix index that evaluates the
a Konüs price index, which is based on cost functions, satisfies impact on revenue of a change in the output price mix. Inserting
the mean value test in input prices. Hence WK (y1 , y0 , w1 , w0 ) must (18) into (17) generates a base period decomposition of revenue
necessarily satisfy the mean value test because it is expressed as change
the ratio of dual input price distance functions defined in the con-
text of the cost structure given by expressions (1) and (2). How- R1  
= PK0 x0 , p1 , p0 × YP × P SL x0 , y0 , p1 , p0 . (20)
ever WK (y1 , y0 , w1 , w0 ) is a theoretical index that must be esti- R0
mated, and empirical estimates can fail the mean value test, as
Since D0p (x, p) is homogeneous of degree +1 in p, the Shephard-
we demonstrate in Section 5 below. The Konüs dual input price
Laspeyres output price mix index P SL (x0 , y0 , p1 , p0 ) = 1 if, and only
index satisfies the product test with the Fisher input quantity in-
if, p1 = λp0 , λ > 0, and then R1 /R0 = PK0 (x0 , p1 , p0 ) × YP . Thus the
dex if, and only if, the Shephard-Fisher input price mix index
Konüs base period dual output price index PK0 (x0 , p1 , p0 ) satisfies
is unity, a sufficient condition for which is W SL (y0 , x0 , w1 , w0 ) =
the product test with the Paasche output quantity index YP if, and
W SP (y1 , x1 , w1 , w0 ) = 1. A necessary and sufficient condition is
only if, the output price mix is unchanged between base and com-
W SL (y0 , x0 , w1 , w0 ) = 1/ W SP (y1 , x1 , w1 , w0 ).3
parison periods. Otherwise revenue change has three drivers.
2.2. A dual output price index and the decomposition of revenue Moving from base period to comparison period, a Konüs com-
change parison period dual output price index is defined as

 D1p x1 , p1
Again following Shephard (1970; Chapter 10), we define the PK1 x1 , p1 , p0 =  , (21)
revenue structure of production technology as the family of sub- D p x1 , p0
1

which generates a decomposition of revenue change as

3
A similar sufficiency condition holds for all geometric mean functions. For ex-
ample, Pastor and Lovell (2020) have shown that a Fisher price index can be circular R1  
even if neither of its Laspeyres and Paasche components is circular. 0
= PK1 x1 , p1 , p0 × Y I1 x1 , y1 , y0 , p1 , p0 , (22)
R
332 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337

in which Y I1 (x1 , y1 , y0 , p1 , p0 ) is a comparison period implicit out- Solving (27) for the Konüs dual productivity index, which is the
put quantity index. We express this index as reciprocal of the Konüs dual price recovery index, yields

 R1 /R0 WK y1 , y0 , w1 , w0  Y
1 1 1
YI x , y , y , p , p 0 1 0
=   = ρ y1 , y0 , x1 , x0 , p1 , p0 , w1 , w0 × F , (28)
PK1 x1 , p1 , p0 PK x1 , x0 , p1 , p 0 XF

p0T y1 y1T p1 D1p x1 , p0 in which
= 0T 0 × 1T 0 ×  
p y 1 1 1y p Dp x , p
 ρ y1 , y0 , x1 , x0 , p1 , p0 , w1 , w0
= YL × P SP x1 , y1 , p1 , p , 0
(23)  
P SF x1 , x0 , y1 , y0 , p1 , p0 /W SF y1 , y0 , x1 , x0 , w1 , w0
in which YL = p0T y1 / p0T y0 is a Laspeyres output quantity index =   .
R1 /C 1 / R0 /C 0
and

  Expression (28) provides the relationship between the Konüs
 y1T p1 /D1p x1 , p1 >
1 1
P SP x , y , p , p 1 0
=
  1 (24) dual productivity index and a Fisher productivity index. The nu-
y1T p0 /D p x1 , p0 1 < merator of ρ takes a value of one if the Shephard-Fisher price
mix index is unity, a requirement that imposes restrictions on
is a Shephard-Paasche output price mix index. Substituting (23)
the behavior of output and input price mixes. And since Rh =
into (22) generates a second decomposition of revenue change
(1 + gh )C h , h = 1, 0 where g expresses the margin of the produc-
R1   tion unit, the denominator takes a value of one when the mar-
0
= PK1 x1 , p1 , p0 × YL × P SP x1 , y1 , p1 , p0 , (25) gin is unchanged which, as we noted in our discussion of Siegel
R
(1961) in Section 1, does not require Rh = Ch , h = 1, 0. This require-
the product of a Konüs comparison period dual output price in- ment does, however, preclude any trend in market power. Both
dex PK1 (x1 , p1 , p0 ), a Laspeyres output quantity index YL , and a conditions are most likely to occur when the analysis is conducted
Shephard-Paasche output price mix index P SP (x1 , y1 , p1 , p0 ) that over short time periods or in sectors not subject to frequent dis-
provides a second measure of the impact on revenue of a change in ruptive changes to the two price mixes.
the output price mix. A Konüs comparison period dual output price Since YF /XF = [(R1 /C 1 )/(R0 /C 0 )] × (WF /PF ) it follows from (28)
index satisfies the product test with a Laspeyres output quantity that
index if, and only if, the output price mix is unchanged between  
base and comparison periods. WK y1 , y0 , w1 , w0 P SF x1 , x0 , y1 , y0 , p1 , p0 W
 =  × F, (29)
Taking the geometric mean of (20) and (25) generates the final PK x1 , x0 , p1 , p 0 W SF y1 , y0 , x1 , x0 , w1 , w 0 PF
decomposition of revenue change
which provides the relationship between the Konüs dual produc-
R1
  1/2
0
= PK0 x0 , p1 , p0 × PK1 x1 , p1 , p0 × [YP × YL ]1/2 tivity index and the Fisher dual productivity index, which is the
R reciprocal of the Fisher price recovery index.

  1/2
× P SL x0 , y0 , p1 , p0 × P SP x1 , y1 , p1 , p0 As we show in the next section, relationship (28) is essential
  for deriving the desired relationship between the Konüs dual pro-
= PK x1 , x0 , p1 , p0 × YF × P SF x1 , x0 , y1 , y0 , p1 , p0 , (26) ductivity index and a Malmquist productivity index, as well as be-
which expresses revenue change as the product of a Konüs tween each of these theoretical productivity indexes and their em-
dual output price index PK (x1 , x0 , p1 , p0 ), a Fisher output quan- pirical Fisher counterparts.
tity index YF , and a Shephard-Fisher output price mix in-
dex P SF (x1 , x0 , y1 , y0 , p1 , p0 ). The Konüs dual output price in- 3. The relationship between dual and primal productivity
dex satisfies the mean value test in output prices, and satis- indexes
fies the product test with the Fisher output quantity index if,
and only if, P SF (x1 , x0 , y1 , y0 , p1 , p0 ) = 1. Thus P SL (x0 , y0 , p1 , p0 ) = The input distance function provides the foundation for a
P SP (x1 , y1 , p1 , p0 ) = 1 is sufficient, but not necessary, for satisfac- Malmquist (1953) consumer standard of living index, which in our
tion of the product test, a necessary and sufficient condition being context is a producer input quantity index, given in geometric
P SL (x0 , y0 , p1 , p0 ) = 1/P SP (x1 , y1 , p1 , p0 ). mean form by

  1/2
XM y1 , y0 , x1 , x0 = XM
0
y0 , x1 , x0 × XM
1
y1 , x1 , x0
2.3. A price recovery index and the decomposition of profitability
   1/2
change D0i y0 , x1 D1i y1 , x1
=  × 1 . (30)
Combining the geometric mean decomposition of cost change Di y0 , x
0 0 Di y , x
1 0

in Section 2.1 with the geometric mean decomposition of revenue

The output distance function provides the foundation for an
change in Section 2.2 generates the following decomposition of
analogous Malmquist producer output quantity index, given in ge-
profitability change
  ometric mean form by
R1 /C 1 PK x1 , x0 , p1 , p0 YF P SF x1 , x0 , y1 , y0 , p1 , p0 
  1/2
=  × ×  . (27) YM x1 , x0 , y1 , y0 = YM0 x0 , y1 , y0 × YM1 x1 , y1 , y0
R0 /C 0 WK y1 , y0 , w1 , w0 XF W SF y1 , y0 , x1 , x0 , w1 , w0
   1/2
Thus profitability change is the product of a Konüs dual D0O x0 , y1 D1O x1 , y1
=  × 1 . (31)
price recovery index PK (x1 , x0 , p1 , p0 )/WK (y1 , y0 , w1 , w0 ), a Fisher DO x0 , y
0 0 DO x , y
1 0
productivity index YF /XF , and a Shephard-Fisher price mix in-
dex P SF (x1 , x0 , y1 , y0 , p1 , p0 )/W SF (y1 , y0 , x1 , x0 , w1 , w0 ). The Konüs The Malmquist input quantity index satisfies the mean value
dual price recovery index satisfies the product test with the Fisher test in input prices, and the Malmquist output quantity index sat-
productivity index if, and only if the Shephard-Fisher price mix in- isfies the mean value test in output prices (Diewert, 1981;175,
dex is unity. 2018;6228).
 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337 333

It seems natural to define a Malmquist productivity index as the Expressions (28) and (29) relate a theoretical Konüs dual pro-
ratio of a Malmquist output quantity index to a Malmquist input ductivity index to empirical primal and dual Fisher productivity in-
quantity index, which generates dexes, and expressions (34) and (35) relate a theoretical Malmquist
 productivity index to empirical dual and primal Fisher productiv-
YM x1 , x0 , y1 , y0 ity indexes. Conditions for equality between theoretical and em-

XM y1 , y0 , x1 , x0 pirical productivity indexes involve the behavior of the data, ex-
     1/2 pressed in terms of the trend in the margin of revenue over cost
D0O x0 , y1 /D0O x0 , y0 D1O x1 , y1 /D1O x1 , y0 and trends in quantity and price mixes. No assumption of opti-
=   × 1 1 . (32) mizing behavior or about the structure of technology is required.
Di y0 , x1 /Di y0 , x0
0 0 Di y1 , x1 /Di y1 , x0
In contrast, Färe and Grosskopf (1992) and Balk (1993) relate a
This index was suggested, in simplified form, by Diewert (1992), theoretical input-oriented CCD Malmquist productivity index to a
and proposed and named the Malmquist total factor productivity Fisher productivity index. They impose no restrictions on the be-
index by Bjurek (1996). However Diewert (1992) noted that the in- havior of the data. Their conditions for equality involve optimiz-
dex was anticipated much earlier by Hicks (1961) and Moorsteen ing behavior, requiring allocative efficiency, both within and be-
(1961), and the Hicks-Moorsteen appellation has stuck.4 tween periods. Finally, to complete the linkages among produc-
We now derive the relationship between the Konüs dual tivity indexes, Färe and Grosskopf (1996) relate the theoretical
productivity index WK (y1 , y0 , w1 , w0 )/PK (x1 , x0 , p1 , p0 ) and the Malmquist and CCD Malmquist productivity indexes, with equal-
Malmquist productivity index YM (x1 , x0 , y1 , y0 )/XM (y1 , y0 , x1 , x0 ). ity requiring restrictions on the structure of technology and the way
We have related the Konüs dual productivity index to profitability it changes, namely constant returns to scale and inverse homoth-
change in Section 2.3. We next relate the Malmquist productivity eticity. O’Donnell (2012) found constant returns to scale and the
index to profitability change, and from these two relationships it is absence of technical change to suffice for equality, a requirement
possible to relate Konüs dual and Malmquist productivity indexes. Mizobuchi (2016) relaxed to constant returns to scale and Hicks-
Grifell-Tatjé and Lovell (2015; 144, 2016; 110) have expressed neutral technical change.
profitability change as Finally, equating expressions (35) and (28) yields the rela-
tionship between the Konüs dual and Malmquist productivity in-
 
R1 /C 1 YM x1 , x0 , y1 , y0 PF Y MF x1 , x0 , p1 , p0 , y1 , y0 dexes
=  × ×  , 
R0 /C 0 XM y1 , y0 , x1 , x0 WF X MF y1 , y0 , w 1 , w 0 , x1 , x0 WK y1 , y0 , w1 , w0

(33) PK x1 , x0 , p1 , p0

and solving (33) for the Malmquist productivity index yields  YM x1 , x0 , y1 , y0
 = γ y ,y ,x ,x , p , p ,w ,w
1 0 1 0 1 0 1 0
×  , (36)
 W XM y1 , y0 , x1 , x0
YM x1 , x0 , y1 , y0
 = δ y1 , y0 , x1 , x0 , p1 , p0 , w1 , w0 × F , (34)
XM y1 , y0 , x1 , x 0 PF in which

in which
γ y1 , y0 , x1 , x0 , p1 , p0 , w1 , w0
 P SF (x1 ,x0 ,y1 ,y0 , p1 , p0 ) Y MF (x1 ,x0 , p1 , p0 ,y1 ,y0 )
δ y1 , y0 , x1 , x0 , p1 , p0 , w1 , w0 W SF ( y1 ,y0 ,x 1 ,x 0 ,w 1 ,w 0 )
× X M y1 ,y0 ,w 1 ,w 0 ,x 1 ,x 0
 1 1  0 0 =   F( )
.
R /C / R /C R1 /C 1 / R0 /C 0
=   ,
Y MF x1 , x0 , p1 , p0 , y1 , y0 /X MF y1 , y0 , w1 , w0 , x1 , x0 Thus equality of the Konüs dual and Malmquist productivity in-
dexes requires the product of the Shephard-Fisher price mix index
and Y MF (x1 , x0 , p1 , p0 , y1 , y0 )/X MF (y1 , y0 , w1 , w0 , x1 , x0 ) is a and the Malmquist-Fisher quantity mix index to equal profitabil-
Malmquist-Fisher quantity mix index analogous to the Shephard- ity change. Even if the accounting identity holds, a condition sat-
Fisher price mix index in (27). Expression (34) provides the isfied by the Jorgenson and Griliches data, equality between Konüs
relationship between a Malmquist productivity index and a Fisher dual and Malmquist productivity indexes is not guaranteed. Equal-
dual productivity index. ity also would require any departure from price mix constancy to
And since WF /PF = (YF /XF )/[(R1 /C 1 )/(R0 /C 0 )] it follows that be offset by a reciprocal departure from quantity mix constancy.
 We conclude this Section by noting that price mix changes re-
YM x1 , x0 , y1 , y0
 late theoretical Konüs and empirical Fisher productivity indexes
XM y1 , y0 , x1 , x0 in (28) and (29), while quantity mix changes relate theoreti-
YF /XF cal Malmquist and empirical Fisher productivity indexes in (34)
=   , (35) and (35). Consequently both price mix changes and quantity mix
Y MF x1 , x0 , p1 , p0 , y1 , y0 /X MF y1 , y0 , w1 , w0 , x1 , x0
changes relate the two theoretical productivity indexes in (36).
which provides the relationship between a Malmquist productiv-
ity index and a Fisher productivity index. The two productivity in- 4. Implementation
dexes are equal if, and only if, YMF = XMF . However if variation in
the two quantity mixes is approximately offsetting, in the sense The data set we use comprises a single time series, and
that any change in the output quantity mix has approximately the so we resort to a global productivity index proposed by Pastor
same effect on revenue as any change in the input quantity mix and Lovell (2005) defined on an intertemporal production set
has on cost, then theoretical Malmquist and empirical Fisher pro- TG = conv{T 1 ∪ … ∪ T T } introduced by Tulkens and Vanden
ductivity indexes are approximately equal. Eeckaut (1995). A global productivity index has the virtue of
being a fixed base index, and therefore is circular, whereas
4
a contemporaneous productivity index is not circular, unless
The Malmquist productivity index in (32) is simultaneously output- and input-
oriented. This desirable feature distinguishes it from an alternative Malmquist pro-
severe restrictions are imposed on the structure of technol-
ductivity index introduced by Caves, Christensen and Diewert (1982), which is ei- ogy and the way it changes (Färe & Grosskopf, 1996) or on
ther output-oriented or input-oriented, but not both. the data and the way they change (Pastor & Lovell, 2019).
334 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337

We define a global price recovery index in the same way, and so it the first pair of programs, and output quantities replacing output
is also a fixed base index and therefore circular. prices in the second pair of programs. The information provided by
With a global technology defined on a single time series of the envelopment programs also can be used to calculate the price
data, the dual productivity index is expressed as mix index and the quantity mix index in (36).

G  t+1 t+1 t  1/2
WKG yt+1 , yt , wt+1 , wt W y , w , w × WKG yt , wt+1 , wt 5. The data and the results
 =
K    1/2
,
G
PK xt+1 , xt , pt+1 , t
p G
PK xt+1 , pt+1 , pt × PK xt , pt+1 , pt
G
Wang, Nehring, and Mosheim (2018) provide background in-
(37) formation generated by the US Department of Agriculture’s Eco-
nomic Research Service (ERS) on the productivity performance of
and the primal productivity index is expressed as
US agriculture over the 68 year period 1948–2015. Using ERS ag-

G  t+1 t+1 t  1/2 gregate quantity indexes, normalized to unity in 2005, of total out-
YMG xt+1 , xt , yt+1 , yt YM x , y , y × YMG xt , yt+1 , yt
 =
  1/2 , put and total farm input, Wang, Nehring and Mosheim report out-
XM yt+1 , yt , xt+1 , x
G t
XM yt+1 , xt+1 , xt × XM yt , xt+1 , xt
G G put growth of 170% and input growth of 7%, from which they infer
total factor productivity growth of 152%, or 1.38% per annum. Using
(38)
ERS aggregate price indexes of total output and total farm input,
in which the superscript “G” indicates the global technology con- also normalized to unity in 2005, we calculate input price growth
sisting of data from all time periods, and t = 1,…,T. The two com- of 788% and output price growth of 253%, implying growth in the
ponents of WKG and PKG in (37), and the two components of YMG and ratio of input prices to output prices of 152%, or 1.38% per annum,
XMG in (38), have the same definitions and mathematical structure
exactly the same as the ERS estimate of total factor productivity
as their theoretical counterparts in Sections 2 and 3. growth.5
Both productivity indexes are based on distance functions, This data source also contains price indexes normalized to unity
and we use data envelopment analysis (DEA) (Banker, Charnes, in 2005 and implicit quantity indexes expressed in 2005 dollars, of
& Cooper, 1984; Charnes, Cooper, & Rhodes, 1978) to estimate three farm outputs (livestock and products, crops, and other farm-
these distance functions. The envelopment program for the two related outputs) and three farm inputs (capital, labor, and interme-
distance functions comprising the dual Konüs input price index diate goods). We use these indexes to estimate the two theoretical
WKG (yt+1 , yt , wt+1 , wt ) in (37) is, in the general case of N inputs, productivity indexes and to calculate the two empirical productiv-
M outputs and T time periods, ity indexes.6
Envelopment Programs for WKG (yt+1 , yt , wt+1 , wt ) The two decompositions of profitability change (which is one

−1 by construction) in expressions (27) and (33) are collected in

DGw (yr , ws ) = min μ Table 1 for the entire 1948–2015 period, and for peak-to-peak sub-
Subject to periods used by the ERS. As we noted in Sections 2 and 3, theo-
retical Konüs and Malmquist indexes satisfy the mean value test,

T
although their empirical estimates can fail the test. We find a
λt wtn <= μwsn n = 1, . . . , N
very small number of failures, each extremely small quantitatively.
t=1
WKG (y1 , y0 , w1 , w0 ) fails in two years with maximum deviation of

T 0.0 0 038, PKG (x1 , x0 , p1 , p0 ) fails in five years with maximum devi-
yrm <
= λt ytm m = 1, . . . , M ation of 0.0 0 0 05, YMG (x1 , x0 , y1 , y0 ) fails in 3 years, with maximum
t=1 deviation of 0.0 0 0 03, and XM G (y1 , y0 , x1 , x0 ) satisfies the mean value


T test in all years.
λt = 1, λt >= 0 t = 1, . . . , T The decomposition of profitability change in expression (27),
t=1 normalized to unity in 1949 and cumulated to 2015, is depicted
in Fig. 1. The decomposition illustrates the distributional aspect
r = t + 1 in WKG (yt+1 , wt+1 , wt ), r = t in WKG (yt , wt+1 , wt )
of productivity growth embodied in (28), with nearly all increase
s = t + 1 in numerators, s = t in denominators and the envelop-
in WK /PK attributable to growth in XF /XF , the very small gap at-
ment program for the two distance functions comprising the dual
tributable to movements in price mixes.
Konüs output price index PKG (xt+1 , xt , pt+1 , pt ) in (37) is
Fig. 2 portrays three cumulative productivity indexes: two the-
Envelopment Programs for PKG (xt+1 , xt , pt+1 , pt )
oretical indexes, the dual Konüs index and the primal Malmquist

−1 index, and one empirical index, the Fisher index (primal and dual
DGp (xr , ps ) = max ν
Fisher indexes are equal since the data satisfy zero annual profit
Subject to by construction).

T Over the entire period the theoretical Konüs-Shephard dual
ν psm <= λt ptm m = 1, . . . , M and Malmquist primal productivity estimates bound the empiri-
t=1 cal Fisher estimates very closely, with average annual growth rates


T
λt xtn <
= xrn n = 1, . . . , N 5
Equality of the ERS implicit quantity-based and price-based productivity in-
t=1
dexes is consistent with the data satisfying zero annual profit by construction
and the use of Fisher indexes. The ERS agricultural productivity data are pub-

T licly available, and can be accessed at https://www.ers.usda.gov/data-products/
λt = 1, λt ≥ 0 t = 1, . . . , T agricultural-productivity-in-the-us/.
6
Our data set is a time series extending from 1948 through 2015 updated by
t=1
ERS 10 October 2017 (recently extended by ERS 10 January 2020 to 2017, renor-
r = t + 1 in PKG (xt+1 , pt+1 , pt ), r = t in PKG (xt , pt+1 , pt ) malized to 2015, with minor data revisions). ERS also publishes data that support
s = t + 1 in numerators, s = t in denominators a shorter panel, covering 48 states from 1960 through 2004. We have chosen to
use the longer time series that includes a growth spurt from 2007, and because
The envelopment programs for the distance functions compris- we are not concerned with inter-state variation in productivity growth. The ERS
ing the primal Malmquist productivity indexes in (38) have the provides a brief analysis of their panel data findings in https://www.ers.usda.gov/
same structure, with input quantities replacing input prices in data-products/agricultural-productivity-in-the-us/summary-of-recent-findings/.
 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337 335

Table 1
Sources of Profitability Change.

PKG (x1 , x0 , p1 , p0 ) PSFG (x1 , x0 , y1 , y0 , p1 , p0 ) YF R1 /R0 YMG (x1 , x0 , y1 , y0 ) Y MFG (x1 , x0 , p1 , p0 , y1 , y0 ) PF

WKG (y1 , y0 , w1 , w0 ) W SFG (y1 , y0 , x1 , x0 , w1 , w0 ) XF C 1 /C 0 G
XM ( y1 , y0 , x1 , x0 ) XMFG (y1 , y0 , w1 , w0 , x1 , x0 ) WF

1948–53 0.997 1.000 1.003 1.000 1.015 0.988 0.997

1953–57 0.994 1.001 1.005 1.000 1.003 1.002 0.995
1957–60 0.965 1.006 1.030 1.000 1.009 1.021 0.971
1960–66 0.980 1.008 1.012 1.000 1.011 1.001 0.988
1966–69 1.002 0.976 1.023 1.000 1.006 1.017 0.978
1969–73 1.016 0.963 1.022 1.000 1.010 1.011 0.979
1973–79 0.983 1.010 1.008 1.000 0.998 1.010 0.992
1979–81 0.967 0.996 1.039 1.000 1.045 0.994 0.963
1981–90 0.958 1.022 1.021 1.000 1.018 1.004 0.979
1990–00 0.980 1.005 1.016 1.000 1.012 1.003 0.985
2000–07 0.987 1.004 1.009 1.000 1.019 0.991 0.991
2007–15 1.010 0.985 1.005 1.000 1.004 1.001 0.995
1948–2015 0.986 1.001 1.014 1.000 1.011 1.003 0.986
Max 1.208 1.112 1.164 1.000 1.100 1.118 1.154
Min 0.815 0.832 0.867 1.000 0.922 0.892 0.859

Fig. 1. Sources of Profitability Change.

Fig. 2. Three Cumulative Productivity Indexes.

336 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337

Table 2 We have derived the relationship between our Konüs-Shephard

Kolmogorov-Smirnov Test Results.
Expression Hypothesis K-S test statistic
(28) WK /PK = YF /XF 0.194
(34) WF /PF = YM /XM 0.197
(36) WK /PK = YM /XM 0.343
of WKG /PKG = 1.42% > YF /XF = 1.38% > YMG /XM
G = 1.13%. The closeness
of the two bounding estimates is due to the very small contri-
butions of the two mix indexes, with average values of the price
mix index P SFG /W SFG = 1.0 0 07 and average values of the quantity
mix index Y MFG /XMFG = 1.0025. Inserting the relevant mix indexes
into expression (36) yields the relation between dual Konüs and
primal Malmquist productivity indexes WKG /PKG = 1.0032 × YMG /XM
Kolmogorov-Smirnov tests for equality of each of three pairs of
productivity indexes are collected in Table 2; all three tests fail to
reject the null hypothesis of equality, since the differences in the
distributions of each pair of productivity estimates are not statis-
tically significant. The numerically small, and statistically insignifi-
cant, differences between the theoretical and empirical productiv-
ity indexes, and between the two theoretical productivity indexes,
result from minimal changes in output and input price mixes (la-
bor being the sole exception), and from modest changes in the
output and input quantity mixes, with crop production growing
faster than livestock production, and intermediate inputs and capi-
tal growing and land and labor declining, documented by the ERS.
Fig. 2 shows that the three cumulative productivity indexes
grow together until approximately 1982–83, when the Malmquist
index begins to lag the other two indexes. This pattern suggests
that most of the impact of the quantity mix index in Eq. (34),
and the combined quantity mix index and price mix index in
Eq. (36) has occurred since then. This has indeed occurred, with
YMF /XMF (1984–2016) > YMF /XMF (1949–1983) consistent with
YM /XM < WF /PF during (1984–2016), and YMF /XMF (1984–2016) >
YMF /XMF (1949–1983) and PSF /WSF (1984–2016) > PSF /WSF (1949–
1983) consistent with YM /XM < WK /PK during (1984–2016).
We caution the reader that our results are based on ERS price
indexes normalized to unity in 2005 and implicit quantity indexes
expressed in 2005 dollars. These indexes are specific to each of
three inputs and three outputs, making results sensitive to the
choice of normalization year. In addition, results will also differ if
normalized price indexes are replaced by deflated price indexes,
with deflation on an annual basis.
The cumulated results depicted in Figs. 1 and 2 offer a com-
pelling illustration of the distributive impacts of productivity
growth emphasized by Siegel (1955; 53) and Kendrick (1961; 111).
In US agriculture sustained productivity growth meant that by
2015 input prices were over 2.5 times higher relative to output
prices than they were in 1949.
6. Conclusions
In this paper we propose a new dual productivity index based
on the work of Konüs and Shephard. The index exploits the fact,
noted by Shephard, that the cost functions Konüs used to define a
cost of living index in quantity space, with input quantities as the
choice variables, can be re-interpreted as input distance functions
in price space, with input prices as the choice variables. These in-
put distance functions can then be used to construct an input price
index. Similarly revenue functions can be re-interpreted as output
distance functions in output price space and used to construct an
output price index. This leads to the definition of a dual produc-
tivity index as the ratio of an input price index to an output price
index.
dual productivity index and a Malmquist primal productivity index,
p-value and we have demonstrated that the two are not generally equal.
0.164 The relationship between the two depends on two features of the
0.119 underlying data: the trend in the margin of revenue over cost, and
<0.000 the trends in the output quantity mix and the input quantity mix.
We have also shown that the dual and primal theoretical indexes
are not generally equal to their Fisher empirical counterparts, with
the relationships depending on the same features of the underlying
data.
Our new dual productivity index is a theoretical index, in con-
trast to the empirical Fisher index, and so must be estimated
rather than calculated. We have used a time series of US agricul-
tural data to estimate our dual and primal productivity indexes,
and to calculate Fisher primal and dual productivity indexes. Al-
G.
though no two productivity indexes are equal (with the obvi-
ous exception that YF /XF = WF /PF ), all three have approximately the
same magnitude, with differences between each pair numerically
small and statistically insignificant. This finding is attributable to
two features of the data: the margin is unity by construction (i.e.,
the accounting identity is satisfied in all years), and departures of
the output price mix from constancy have been approximately off-
set by departures of the input price mix from constancy, and sim-
ilarly for output and input quantity mixes.
We conclude by recalling that Fourastié motivated a dual ap-
proach to productivity measurement by arguing that in some cir-
cumstances prices are easier to measure, or are measured more
accurately, than quantities. Later Hsieh estimated primal and dual
productivity indexes for four East Asian countries, and found the
two to diverge dramatically in Singapore, with estimated dual pro-
ductivity growth and primal productivity decline. He attributed
this divergence to a significant overstatement of investment spend-
ing in the Singapore national accounts that artificially depressed
estimated primal productivity change.
However all previous dual and indirect productivity indexes
cited in Section 1 rely on quantity data, typically in the form of
output revenue shares used to weight output price changes and
input cost shares used to weight input price changes. Indeed our
dual productivity index uses output quantities in the construction
of a dual input price index and input quantities in the construction
of a dual output price index. This universal reliance on quantity
data requires either a belief in the accuracy of national (or sec-
toral, or business) account quantity data, or a conviction in the
inaccuracy of such data combined with a willingness to develop
and defend alternative quantity data, as Hsieh has done. An alter-
native approach to generating and defending alternative quantity
data would exploit the multiplier duals to the DEA envelopment
programs in Section 4. These multiplier programs provide shadow
output quantities and shadow input quantities, which may be com-
pared to observed quantity data as a credibility check.7
This dilemma suggests that a logical extension of the dual pro-
ductivity index introduced in this paper would be the development
of an alternative theory-based dual productivity index that is en-
tirely independent of quantity data. Such an index would be di-
rectly analogous to a Malmquist productivity index, which is en-
tirely independent of price data. Our dual productivity index is in-
dependent of quantity data if and only if production technology is
inversely homothetic. It would be desirable to develop a theory-
based dual productivity index independent of quantity data that
does not rely on such an unrealistic assumption about the struc-
ture of production technology.
7
We agree with a reviewer, who contrasts the theoretical attractiveness of the
use of shadow quantities obtained from the dual DEA multiplier program to com-
pare theoretical with observed quantities with the empirical challenges confronting
such a comparison.
 E. Grifell-Tatjé and C.A.K. Lovell / European Journal of Operational Research 289 (2021) 328–337
Acknowledgements
We are grateful to the Generalitat de Catalunya project
2017SGR-1036 and the Spanish Ministerio de Economía, Industria
y Competitividad, project ECO2017–86054-C3–1-RX, for their gen-
erous financial support of this research. We thank Esteban Lafuente
for his assistance, and Rolf Färe and two reviewers for their helpful
comments on two previous drafts. All remaining shortcomings are
ours.
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