The dynamic Luenberger-Hicks-Moorsteen productivity indicator with an application to dairy farms in South West England

This paper introduces a dynamic Luenberger-Hicks-Moorsteen (LHM) productivity indicator that takes into account the adjustment costs of changing the level of quasi-fixed capital inputs. Being additively complete in the dynamic sense, the LHM indicator is decomposed into contributions of outputs, variable inputs and investments in dynamic factors. Moreover, we decompose the LHM indicator into technical change, technical inefficiency change and scale ineffi- ciency change using an investment-, output- and input-direction. Employing a nonparametric framework, the empirical application focuses on the dairy sector in South West England over the period 2001 − 2014