Friday, August 3, 2012

Effectiveness and Efficiency - Concepts

Effectiveness is the extent to which outputs of service providers meet the objectives set for them.

Efficiency is the success with which an organization uses its resources to produce outputs — that is the degree to which the observed use of resources to produce outputs of a given quality matches the optimal use of resources to produce outputs of a given quality. This can be assessed in terms of technical, allocative, cost and dynamic efficiency.

Technical and Allocative Efficiency - Concepts

Technological change and efficiency improvement are important sources of production growth in any economy.

Technological change is defined as a shift in the frontier production function.

Efficiency improvement can be further decomposed into technical and allocative efficiency.

The concept of technical efficiency is based on input and output relationships.  Technical inefficiency arises when actual or observed output from a given input mix is less than the maximum possible.

Allocative inefficiency arises when the input mix is not consistent with cost minimization.  Allocative inefficiency occurs when farmers do not equalize marginal returns with true factor market prices.