Question

Describe what input- and output-orientation is in the context of efficiency measurement. When would the two orientations yield identical answers? And are there cases when one should use one but not the other (provide examples)?

Answer 1

In the context of efficiency measurements,

Input orientation means comparing the actual inputs used in the production process with the amount of potential minimum inputs required.

Output orientation refers to the comparison between the actual outputs and the potential output

Higher efficiency requires a higher output input ratio.

The input and output orientation yields identical answers in the case with profit efficiency. For the profits to be maximised there should be both input and output orientation.

There are cases where one should use one not the other. In case of cost efficiency there is a comparison between the actual and potential costs of inputs used. Where as in the case with revenue efficiency a comparison with the actual and potential output is done.