8 8.1. Introduction MEASURING EFFICIENCY IN PRODUCTION: WITH AN APPLICATION TO ELECTRIC UTILITIES Rolf Fare, Shawna Grosskopf, James Logan, and C.A. Knox Lovell Michael Farrell's (1957) pathbreaking investigation of the structure of efficiency in production has somewhat belatedly spurred a flurry of derivative research. Most of this research has focused on technical efficiency, although some studies have investigated technical, allocative (or price), and overall (or economic) efficiency. In addition, much of this research has followed Farrell by imposing rather severe restrictions on the structure of production technology. Finally, virtually all such studies ignore the implications of change or variation in efficiency for productivity growth or variation. In this paper we focus our attention on the technical component of overall efficiency. We relax Farrell's restrictive assumptions on the structure of production technology, and this enables us to examine the structure of technical efficiency by decomposing an overall measure of technical efficiency into its constituent parts. Finally, we mention briefly the connection between efficiency measurement and the measurement of productivity growth. The paper unfolds as follows. In section 8.2 we introduce a production technology that is required to satisfy only a minimal set of axioms. In particular, it is not required to satisfy constant, or even nonincreasing, 185 A. Dogramaci et al. (eds.), Managerial Issues in Productivity Analysis © Kluwer-Nijhoff Publishing 1985