Management and Political Sciences Review, vol.2, no.1, pp.117-131, 2020 (Peer-Reviewed Journal)
This paper tackles the evolution of thought regarding the production theory from classical to neoclassical era, reaching to its modern techniques in DEA (Data Envelopment Analysis). David Ricardo, with his seminal book, “On the Principles of Political Economy”, is a great example depicting the classical chain of thought of his time, while the famous Cobb-Douglas Function highlights the shift in economical thinking from “average” to “marginal” and from “macro to “micro” and from “labor focused” to “capital & labor”. Based on the footsteps of the neoclassical assumptions, non-parametric approaches such as DEA evolve on the concept of producing a certain output level from the given input bundle, and derive their frontier from the given data with the defined technology. DEA literature on undesirable outputs extends by introducing solutions to well known issues, such as the relaxation of the “free-disposability” for certain outputs, along with the differentiation between weak and strong disposability, asymmetric treatment of bad and good outputs, and the use of shadow prices.