Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 144: Integrating Consumer satisfaction into Productivity Indexes

Rolf Färe , Shawna Grosskopf and Pontus Roos
Additional contact information
Rolf Färe: Department of Economics, Postal: Southern Illinois University, Carbondale, IL 62901-4515, USA
Shawna Grosskopf: Department of Economics, Postal: Southern Illinois University, Carbondale, IL 62901-4515, USA
Pontus Roos: Swedish Institute for Health Economics, Postal: University of Lund, P.O. Box 2127, 229 92 Lund, Sweden

Abstract: The purpose of this paper is to include consumer satisfaction in the specification of productivity. We accomplish this by using Shephard’s preference indirect distance function to model technology subject to a utility target. The utility constraint allows us to include information on consumer satisfaction. The preference indirect distance function is then used to construct a Malmquist type of productivity index. As with the usual Malmquist productivity index, we can decompose productivity change into changes in technology and changes in efficiency. In addition, we show how to derive a quality change component. The technique is illustrated by an application to Swedish pharmacies.

Keywords: Productivity; quality; consumer satisfaction; utility indirect input distance function; Malmquist index

JEL-codes: D24

15 pages, December 1996

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