Copyright © 2012 Juan Aparicio and Jesus T. Pastor. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper is concerned with formulating directional distance functions assuming that firms operate subject to rate-of-return regulation. To this end, we consider two different contexts. First, we assume that input prices are known, which allows us to extend the rate of return regulated version of Farrell efficiency. Secondly, we assume that input prices are unknown, showing then that a specific reference direction arises as a natural choice for measuring efficiency with directional distance functions.