3.2.2.2 Profit efficiency
Following Humprey and Pulley (1997), profit efficiency is defined as how close a firm is to
generating maximum possible outputs given a particular level of input and output prices. It is
the ratio of predicted maximum profit which could be earned if a firm was as efficient as the
best practice firm after adjusting for random error. The value is bounded between 0 and 1.
The higher the profit efficiency score is, the more profit efficient the firm will be. If the score
is 1, it means the most profit efficient firm. The general form of profit function can be written
as: