Primal and dual multi-output flexibility measures

Flexibility is a crucial component of competitive advantage, especially under conditions of dynamically changing environments. In this theoretical paper, we present alternative flexibility measures that can be used to calculate the ability of the production technology to accommodate output variations at lower costs. We refine the existing short-run multi-output flexibility measure to the long-run using three alternative total cost functions in order to capture the impact of fixed costs on adjustment ability. The proposed new long-run flexibility measures are based on alternative definitions of the long-run total cost function considering various assumptions about the decision-making process. We derive primal flexibility measures by using the dual relationships between these cost functions and the corresponding input distance functions. The proposed measures allow us to investigate both short-run and long-run flexibility using different representations of the production technology, and thus to examine various aspects of the firm’s ability to adjust. Copyright Springer Science+Business Media New York 2015