Measuring input-specific productivity change based on the principle of least action

In for-profit organizations, efficiency and productivity measurement with reference to the potential for input-specific reductions is particularly important and has been the focus of interest in the recent literature. Different approaches can be formulated to measure and decompose input-specific productivity change over time. In this paper, we highlight some problems within existing approaches and propose a new methodology based on the Principle of Least Action. In particular, this model is operationalized in the form of a non-radial Luenberger productivity indicator based on the determination of the least distance to the strongly efficient frontier of the considered production possibility sets, which are estimated by non-parametric techniques based upon Data Envelopment Analysis. In our approach, overall productivity change is the sum of inputspecific productivity changes. Overall productivity change and input-specific changes are broken up into indicators of efficiency change and technical change. This decomposition enables the researcher to quantify the contributions of each production factor to productivity change and its components. In this way, the drivers of productivity development are revealed. For illustration purposes the new approach is applied to a recent dataset of Polish dairy processing firmsMagdalena Kapelko would like to acknowledge the funding by the National Science Centre in Poland, decision number DEC-2013/11/D/ HS4/00252.Aparicio would like to express his gratitude to the Spanish Ministry for Economy and Competitiveness for supporting this research under grant MTM2013-43903-P.We also thank the comments of participants at the 14th European Workshop on Efficiency and Productivity Analysis (EWEPA 2015) in Helsinki and the OR2015 International Conference on Operations Research in Vienna