Technical Change
1. Definition
Technical change is defined as any shift in the production possibility set. Let t denote a technology
index. Then, the production possibility set can be written as F(t), where z ≡ (-x, y) F(t) means inputs x
R n can be used to produce outputs y R m under technology t.
Technical change is defined as any shift in the technology index t, say from t to t’, such that F(t) F(t’).
Technical progress is defined as a shift in the technology index from t to t’ such that F(t) F(t’).
Technical progress from t to t’ means that it becomes possible to produce more outputs y using the
same inputs x, or alternatively to produce the same outputs y using less inputs x.
Feasibility of the netput vector z ≡ (-x, y) F(t) R n+m can be alternatively expressed using the
corresponding output possibility set Y(x, t) ≡ {y: (-x, y) F(t)}, or the input requirement set X(y, t) ≡ {x: (-x,
y) F(t)}. The production technology can be represented by:
the shortage function S(z, t, g) = inf s {: (z - s g) F(t)} (where g is a reference netput bundle
satisfying g R
m n
, g 0),
the output distance function D O (z, t) = inf {: (y/) Y(x, t)},
the Farrell input distance function D F (z, t) = inf {: ( x) X(y, t)},
or the Shephard input distance function D I (z, t) = sup {: (x/) X(y, t)} = 1/ D F (z, t).
We know that z ≡ (-x, y) being feasible implies that S(z, t, g) 0, D O (z, t) 1, D F (z, t) 1, and D I (z,
t) 1. Also, we know that, under free disposal, the boundary of the feasible set is given by S(z, t, g) = 0, D O (z,
t) = 1, D F (z, t) = 1, and D I (z, t) = 1. These functions can provide a basis for measuring technical change.
Consider the case where an increase from t to t’ is associated with technical progress: F(t) F(t’), with t’ > t.
Technical progress can be then assessed as follows:
S (z, t, g) - S(z, t’, g) > 0, where S(z, t, g) is decreasing in t, and [S(z, t, g) - S(z, t’, g)] measures the
number of units of the reference netput bundle g that can be obtained under technical progress from t
to t’. And under differentiability, |S(z, t, g)/t| provides a local measure of technical change.
ln(D O (z, t)) – ln(D O (z, t’)) > 0, where D O (z, t) is decreasing in t, and [ln(D O (z, t)) – ln(D O (z, t’))]
measures the proportional increase in all outputs y that can obtained, given inputs x, due to technical
progress from t to t’. And under differentiability, |ln(D O (z, t))/t| provides a local measure of
technical change.
ln(D F (z, t)) – ln(D F (z, t’)) > 0, where D F (z, t) is decreasing in t, and [ln(D F (z, t)) – ln(D F (z, t’))]
measures the proportional decrease in all inputs x that can obtained, given outputs y, due to technical
progress from t to t’. And under differentiability, |ln(D F (z, t))/t| provides a local measure of
technical change.
ln(D I (z, t’)) – ln(D I (z, t)) > 0, where D I (z, t) is increasing in t, and [ln(D I (z, t’)) – ln(D F (z, t))]
measures the proportional decrease in all inputs x that can obtained, given outputs y, due to technical
progress from t to t’. And under differentiability, ln(D I (z, t))/t provides a local measure of
technical change.
2. Measuring Productivity
2.1. Partial productivity indexes
Commonly used partial productivity indexes are:
- land productivity, as measured by the evolution of crop yield (production per acre or per hectare).
- labor productivity, as measured by the evolution of production per worker or per unit of labor time.