A decomposition of profit loss under output price uncertainty

Jean-Philippe Boussemart (1, 2, 3) , David Crainich (3) , Herve Leleu (4, 3)

1 UFR MIME - UFR de Mathématiques, Informatique, Management, Economie
2 IESEG - School of Management
3 LEM - Lille économie management - UMR 9221
4 UCL FGES - Université Catholique de Lille - Faculté de gestion, économie et sciences

In this paper, firm profit loss is decomposed as the sum of two terms related to the output price uncertainty (price expectation error and risk preference), plus one extra term expressing technical inefficiency. We then describe the implementation of our theoretical model in a robust data envelopment analysis (DEA) framework, which allows an effective and separate estimation of each term of the decomposition. In addition, we offer an operational tool to reveal producers’ risk preferences. A 2009 database of French fattening pig farms is used as an illustration. Our results indicate that risk preference and technical inefficiency are the main sources of profit loss.

Mots clés: Profit loss; Risk preference; Technical inefficiency; Data envelopment analysis; Fattening pig farms

Domaines: Economies et finances

Jean-Philippe Boussemart, David Crainich, Herve Leleu. A decomposition of profit loss under output price uncertainty. European Journal of Operational Research, 2015, 243 (3), pp.1016--1027. ⟨10.1016/j.ejor.2014.12.044⟩. ⟨hal-01526027⟩