Showing papers in "Journal of Productivity Analysis in 2002"
TL;DR: In this article, a class of one-step models for stochastic frontier models with one-sided inefficiency was proposed, where the scale of the model depends on some variables (firm characteristics) and can be estimated in a single step by maximum likelihood.
Abstract: Consider a stochastic frontier model with one-sided inefficiency u, and suppose that the scale of u depends on some variables (firm characteristics) z. A “one-step” model specifies both the stochastic frontier and the way in which u depends on z, and can be estimated in a single step, for example by maximum likelihood. This is in contrast to a “two-step” procedure, where the first step is to estimate a standard stochastic frontier model, and the second step is to estimate the relationship between (estimated) u and z. In this paper we propose a class of one-step models based on the “scaling property” that u equals a function of z times a one-sided error u
* whose distribution does not depend on z. We explain theoretically why two-step procedures are biased, and we present Monte Carlo evidence showing that the bias can be very severe. This evidence argues strongly for one-step models whenever one is interested in the effects of firm characteristics on efficiency levels.
824 citations
TL;DR: In this article, the authors proposed a new technique for incorporating environmental effects and statistical noise into a producer performance evaluation based on data envelopment analysis (DEA). The technique involves a three-stage analysis, in which DEA is applied to outputs and inputs only, to obtain initial measures of producer performance.
Abstract: In this paper we propose a new technique for incorporating environmental effects and statistical noise into a producer performance evaluation based on data envelopment analysis (DEA). The technique involves a three-stage analysis. In the first stage, DEA is applied to outputs and inputs only, to obtain initial measures of producer performance. In the second stage, stochastic frontier analysis (SFA) is used to regress first stage performance measures against a set of environmental variables. This provides, for each input or output (depending on the orientation of the first stage DEA model), a three-way decomposition of the variation in performance into a part attributable to environmental effects, a part attributable to managerial inefficiency, and a part attributable to statistical noise. In the third stage, either inputs or outputs (again depending on the orientation of the first stage DEA model) are adjusted to account for the impact of the environmental effects and the statistical noise uncovered in the second stage, and DEA is used to re-evaluate producer performance. Throughout the analysis emphasis is placed on slacks, rather than on radial efficiency scores, as appropriate measures of producer performance. An application to nursing homes is provided to illustrate the power of the three-stage methodology.
693 citations
TL;DR: In this paper, the authors investigated the operating efficiency differences of a sample of commercial banks across 10 European countries using a Data Envelopment Analysis (DEA) model incorporating only banking variables.
Abstract: The paper investigates the operating efficiency differences of a sample of commercial banks across 10 European countries. First, the paper analyzes the technical efficiency of each country sample following the “basic” Data Envelopment Analysis (DEA) model incorporating only banking variables. Then, a “complete” DEA model is introduced, incorporating environmental factors together with the banking variables of the basic model. The comparison between the two models shows that country-specific environmental conditions exercise a strong influence over the behavior of each country's banking industry.
355 citations
TL;DR: In this article, the authors consider a model that provides flexible parameterizations of the exogenous influences on inefficiency and demonstrate the model's unique property of accommodating non-monotonic efficiency effect.
Abstract: We consider a model that provides flexible parameterizations of the exogenous influences on inefficiency. In particular, we demonstrate the model's unique property of accommodating non-monotonic efficiency effect. With this non-monotonicity, production efficiency no longer increases or decreases monotonically with the exogenous influence; instead, the relationship can shifts within the sample. Our empirical example shows that variables can indeed have non-monotonic effects on efficiency. Furthermore, ignoring non-monotonicity is shown to yield an inferior estimation of the model, which sometimes results in opposite predictions concerning the data.
310 citations
TL;DR: In this paper, a parametric decomposition of a generalized Malmquist productivity index is presented to evaluate the contribution of scale economies to productivity change without recourse to scale efficiency measures, which are neither bounded for globally increasing, decreasing or constant returns to scale technologies nor for ray-homogeneous technologies.
Abstract: This paper provides a parametric decomposition of a generalized Malmquist productivity index which takes into account scale economies. Unlike Balk (2001), the contribution of scale economies to productivity change is evaluated without recourse to scale efficiency measures, which are neither bounded for globally increasing, decreasing, or constant returns to scale technologies nor for ray-homogeneous technologies. An empirical application using panel data from Spanish savings banks is included. This application shows the advantages of the suggested method compared to Balk's approach. The results show an increase of total factor productivity which can be mainly attributed to technical progress and the positive effect of returns to scale.
310 citations
TL;DR: Data Envelopment Analysis (DEA) was introduced in the journal literature by the highly influential 1978 paper of Charnes, Cooper, and Rhodes as discussed by the authors, and the development of research leading up to this paper tended to be forgotten.
Abstract: The concept “Data Envelopment Analysis” (DEA) was introduced in the journal literature by the highly influential 1978 paper of Charnes, Cooper, and Rhodes. In the subsequent literature the development of research leading up to this paper tended to be forgotten. However, studying this diffusion of ideas may give valuable insights into research issues still unexplored and insight in the research process itself. A natural starting point is Farrell's seminal 1957 paper on concepts of efficiency and their computation. The richness of ideas presented in Farrell is demonstrated by the fact that the developments in the following two decades were based on aspects and ideas there. The origins of the main developments are identified, and the connections to Charnes, Cooper, and Rhodes are explored.
193 citations
TL;DR: In this paper, the authors compare nonparametric efficiency scores yielded by two output specifications, one mainly identified with the asset approach and the other which also considers deposits as output, and show that distributions of efficiency scores, estimated nonparametrically by means of kernel smoothing, vary greatly.
Abstract: There is a longstanding controversy over precisely what it is that banks produce. However, there is little evidence on the sensitivity of bank cost efficiency results when different output definitions are applied. This paper does exactly that. In particular, we compare nonparametric efficiency scores yielded by two output specifications, one mainly identified with the asset approach and the other which also considers deposits as output. Results show that distributions of efficiency scores, estimated nonparametrically by means of kernel smoothing, vary greatly. In addition, firms' positions relative to the mean change according to either output definition, and results do not remain constant over time.
84 citations
TL;DR: In this paper, the authors examine the productive performance of a group of three East European carriers and compare it to thirteen of their West European competitors during the period 1977-1990, and conclude that there is a significant slack in resource utilization relative to their Western counterparts.
Abstract: In this paper we examine the productive performance of a group of three East European carriers and compare it to thirteen of their West European competitors during the period 1977–1990. We first model the multiple output/multiple input technology with a stochastic distance frontier using recently developed semiparametric efficient methods. The endogeneity of multiple outputs is addressed in part by introducing multivariate kernel estimators for the joint distribution of the multiple outputs and potentially correlated firm random effects. We augment estimates from our semiparametric stochastic distance function with nonparametric distance function methods, using linear programming techniques, as well as with extended decomposition methods, based on the Malmquist index number. Both semi- and nonparametric methods indicate significant slack in resource utilization in the East European carriers relative to their Western counterparts, and limited convergence in efficiency or technical change between them. The implications are rather stark for the long run viability of the East European carriers in our sample.
79 citations
TL;DR: In this article, the authors compared the technical efficiency of U.S. and Japanese electric utilities during the period 1982-1997 using a stochastic frontier analysis, and found that Japanese utilities were more efficient than U., after controlling for environmental variables.
Abstract: This paper estimates and compares the technical efficiency of the U.S. and Japanese electric utilities during the period 1982–1997 using a stochastic frontier analysis. Our focus is on electricity distribution services of major investor-owned utilities. We employ translog input distance functions to represent the technology of electricity distribution. Empirical results show that after controlling for environmental variables, on average, the Japanese electric utilities are more efficient. It is shown, however, that some U.S. utilities are as efficient as the most efficient Japanese utilities, indicating that the estimated frontier is not necessarily dominated by Japanese utilities.
77 citations
TL;DR: The purpose of this paper is to discuss the use of Value Efficiency Analysis (VEA) in efficiency evaluation when preference information is taken into account and briefly review the main ideas in value efficiency analysis and discuss practical aspects related to the use.
Abstract: The purpose of this paper is to discuss the use of Value Efficiency Analysis (VEA) in efficiency evaluation when preference information is taken into account. Value efficiency analysis is an approach, which applies the ideas developed for Multiple Objective Linear Programming (MOLP) to Data Envelopment Analysis (DEA). Preference information is given through the desirable structure of input- and output-values. The same values can be used for all units under evaluation or the values can be specific for each unit. A decision-maker can specify the input- and output-values subjectively without any support or (s)he can use a multiple criteria support system to assist him/her to find those values on the efficient frontier. The underlying assumption is that the most preferred values maximize the decision-maker's implicitly known value function in a production possibility set or a subset. The purpose of value efficiency analysis is to estimate a need to increase outputs and/or decrease inputs for reaching the indifference contour of the value function at the optimum. In this paper, we briefly review the main ideas in value efficiency analysis and discuss practical aspects related to the use of value efficiency analysis. We also consider some extensions.
58 citations
TL;DR: In this paper, the authors show that the source of Canadian productivity growth has shifted from technical change to terms-of-trade effects, and the consequent measure of total factor productivity is shown to encompass not only the Solow residual, but also the efficiency change of frontier analysis and the hitherto slippery terms of trade effect.
Abstract: The standard measure of productivity growth is the Solow residual. Its evaluation requires data on factor input shares or prices. Since these prices are presumed to match factor productivities, the standard procedure amounts to accepting at face value what is supposed to be measured. In this paper we estimate total factor productivity growth without recourse to data on factor input prices. Factor productivities are defined as Lagrange multipliers to the program that maximizes the level of domestic final demand. The consequent measure of total factor productivity is shown to encompass not only the Solow residual, but also the efficiency change of frontier analysis and the hitherto slippery terms-of-trade effect. Using input-output tables from 1962 to 1991 we show that the source of Canadian productivity growth has shifted from technical change to terms-of-trade effects.
TL;DR: In this article, productivity growth, technical efficiency change, and technological change were measured for a sample of 30 countries in the Western Hemisphere for the 1978-1994 period using the Malmquist index.
Abstract: Productivity growth, technical efficiency change, and technological change were measured for a sample of 30 countries in the Western Hemisphere for the 1978–1994 period using the Malmquist index. The Caribbean compared unfavorably with North America and the Latin American regions. Evidence indicated some support for the convergence hypothesis. Regression analysis indicated that productivity growth in the Caribbean was positively associated with civil, economic, and political liberty.
TL;DR: In this paper, the authors deal with a dynamic adjustment process in which adjustment of a key variable input (labor) towards its desired level is modeled in a panel data context.
Abstract: This paper deals with a dynamic adjustment process in which adjustment of a key variable input (labor) towards its desired level is modeled in a panel data context. The partial adjustment type model is extended to make the adjustment parameter both firm- and time-specific by specifying it as a function of firm- and time-specific variables. Desired level of labor use is represented by a labor requirement function, which is a function of outputs and other firm-specific variables. The catch-up factor is defined as the ratio of actual to desired level of employment. Productivity growth is then defined in terms of a shift in the desired level of labor use and the change in the catch-up factor. Swedish banking data is used as an application of the above model.
TL;DR: This paper uses Data Envelopment Analysis (DEA) for an estimation of the cost efficiency of 70 Danish hospitals and demonstrates that the probabilistic assurance region approach allows for a frontier estimation in the full output space.
Abstract: This paper uses Data Envelopment Analysis (DEA) for an estimation of the cost efficiency of 70 Danish hospitals. The analysis relates to a cost function based on 483 outputs in combination with a set of probabilistic assurance regions defined by the cost distributions for each output. It is demonstrated that the probabilistic assurance region approach allows for (i) a frontier estimation in the full output space, i.e., no fixed aggregation is required, and (ii) a controlling of the variation in heterogeneity of the output clusters, in casu Diagnosis Related Groups. The likelihood of the estimated efficiency score for a given hospital can be measured based on the sensitivity of the score w.r.t. the probability levels used in the specification of confidence intervals for the probabilistic assurance regions.
TL;DR: In this paper, the authors compared the efficiencies across firm ownership types in China and found that non-state-owned enterprises are more efficient than the state-owned entities, which provides evidence to support the continued shifting of industry structure from state-own enterprises to nonstate-owning enterprises.
Abstract: This paper compares the efficiencies across firm ownership types in China. Empirical results show that the non-state-owned enterprises are more efficient than the state-owned enterprises, which provides evidence to support the continued shifting of industry structure from state-owned enterprises to non-state-owned enterprises. Also, the economic gap between the western and coastal regions are found to be related to the variations of performances of ownership types in these regions. In addition, the issue of crossing frontiers and two interesting features of the Byrnes (1985) technique on the separation of across-group and within-group technical efficiency measures are evaluated.
TL;DR: This article considers the case of a regulated firm or industry, and applies a simple principal-agent framework that accounts for informational asymmetries to this context, to derive the associated production and cost frontiers.
Abstract: This article is an attempt to shed light on the specification and identification of inefficiency in stochastic frontiers. We consider the case of a regulated firm or industry. Applying a simple principal-agent framework that accounts for informational asymmetries to this context, we derive the associated production and cost frontiers. Noticeably this approach yields a decomposition of inefficiency into two components: The first component is a pure random term while the second component depends on the unobservable actions taken by the agent (the firm). This result provides a theoretical foundation to the usual specification applied in the literature on stochastic frontiers. An application to a panel data set of French urban transport networks serves as an illustration.
TL;DR: In this article, the adequacy of a parametric functional form to represent the relationship given the minimal maintained assumption of monotonicity and concavity (or convexity) was evaluated by comparing deviations of the fitted parametric form from the observed data with the corresponding deviations estimated under DEA.
Abstract: We consider situations where the a priori guidance provided by theoretical considerations indicates only that the function linking the endogenous and exogenous variables is monotone and concave (or convex). We present methods to evaluate the adequacy of a parametric functional form to represent the relationship given the minimal maintained assumption of monotonicity and concavity (or convexity). We evaluate the adequacy of an assumed parametric form by comparing the deviations of the fitted parametric form from the observed data with the corresponding deviations estimated under DEA. We illustrate the application of our proposed methods using data collected from school districts in Texas. Specifically, we examine whether the Cobb–Douglas and translog specifications commonly employed in studies of education production are appropriate characterizations. Our tests reject the hypotheses that either the Cobb–Douglas or the translog specification is an adequate approximation to the general monotone and concave production function for the Texas school districts.
TL;DR: In this paper, an alternative model for separating technical change from time-varying technical inefficiency is proposed, which uses the general index, developed by Baltagi and Griffin (1988), to model technical change in the production frontier function.
Abstract: This paper proposes an alternative model for separating technical change from time-varying technical inefficiency. The proposed formulation uses the general index, developed by Baltagi and Griffin (1988), to model technical change in the production frontier function and a quadratic function of time, as in Cornwell, Schmidt and Sickles (1990), to capture the temporal pattern of technical inefficiency. In such a setting, all parameters associated with the rate of technical change and the temporal pattern of technical inefficiency are identified separately. Moreover, the proposed formulation is independent of any distributional assumption concerning the one-sided error term associated with technical inefficiency, and it can be estimated in a single stage with non-linear FGLS. Empirical results based on a translog production frontier, and estimates of technical inefficiency and technical change are presented for the UK dairy sector over the period 1982–1992.
TL;DR: In this paper, the authors discuss variable returns to scale and suggest the use of efficient facets (EFs) in the reference technology to give a lower bound of the efficiency scores.
Abstract: The appearance of strictly positive slack variables in DEA solutions causes well known computational and analytical problems studied by Olesen and Petersen (1996) and Green et al. (1996) under constant returns to scale. This paper discusses variable returns to scale and suggests the use of efficient facets (EFs) in the reference technology. It is found to give a lower bound of the efficiency scores. Most importantly, efficiency measured with respect to EFs—the EF based efficiency index—may decrease if additional variables are introduced but are disposed in production. Thus, units are penalized for disposal of incoming variables, and the EF based efficiency index captures the net efficiency of a unit. EF is found to be a useful tool also to search a suitable set of variables for efficiency measurement. Its use is demonstrated with Finnish university data and it is found to change the measured performance of the university sector quite significantly.
TL;DR: In this paper, the authors extend the nonparametric approach to efficiency analysis to deal with uncertainty of input-output prices, and derive necessary and sufficient first-order stochastic dominance (FSD) efficiency conditions.
Abstract: This paper extends the nonparametric approach to efficiency analysis to deal with uncertainty of input-output prices. We generalize the notion of economic efficiency to derive necessary and sufficient first-order stochastic dominance (FSD) efficiency conditions. Interestingly, the FSD conditions include as limiting cases the traditional conditions for economic efficiency and technical efficiency. Furthermore, we propose empirical tests for these FSD conditions, which require minimal assumptions concerning the preferences of the decision-maker and the statistical distribution of the prices. From operational point of view, the FSD conditions can be tested empirically using standard mathematical programming techniques. An empirical application to the Dutch electricity distribution sector illustrates the approach.
TL;DR: In this article, a switching regression model is developed to analyze farmers' choice behavior and cost efficiency in field plowing arrangement in Taiwan and find that the decision on the choice of plowing arrangements is determined by a cost comparison between self-plowing and hired-service, and other non-cost considerations, such as the availability of family labor and machinery, education level, non-farm income, age, and regional effects.
Abstract: In this paper, a switching regression model is developed to analyze farmers' choice behavior and cost efficiency in field plowing arrangement in Taiwan. We find that the decision on the choice of plowing arrangement is determined by a cost comparison between self-plowing and hired-service, and other non-cost considerations, such as the availability of family labor and machinery, education level, non-farm income, age, and regional effects. Across a spectrum of farmer characteristics, empirical results indicate a potentially substantial cost-savings by hiring service for field plowing than by self-plowing. Self-plowing farmers also subject to a significant level of cost inefficiency.
TL;DR: In this paper, the authors contrast the DEA and activity analysis approaches by Charnes, Cooper and Rhodes (1978) and Shephard (1970) respectively, and show that by appropriately normalizing Shephards output price model the two approaches coincide.
Abstract: In this paper we contrast the DEA and activity analysis approaches by Charnes, Cooper and Rhodes (1978) and Shephard (1970), respectively. We show that by appropriately normalizing Shephard's output price model the two approaches coincide.
TL;DR: In this paper, the authors consider the role of technical efficiency in causing supply constraints in the provision of telecommunications services and find that technical efficiency is the major determinant of supply constraint.
Abstract: The paper is concerned with supply constraints in the provision of telecommunications services. As a measure of supply constraint we use the average waiting time for telephone connections. Duration models are employed to analyze a panel data set for 28 countries. In addition to economic variables, we consider the role of technical efficiency in causing supply constraints. Stochastic frontiers are used to determine the technical efficiency with which countries use labor and capital inputs to connect customers. When technical efficiency is included in duration models for waiting times until connection, we find that it is the major determinant.
TL;DR: In this article, the authors unify and extend ideas from nonparametric production analysis and DEA for testing organizational efficiency, and show how the admissible price set can be restricted to account for prior information on prices.
Abstract: This article unifies and extends ideas from nonparametric production analysis and DEA for testing organizational efficiency. We show how the admissible price set can be restricted to account for prior information on prices. These restrictions may relate prices to input and output quantities in order to test noncompetitive behavior of the evaluated decision making unit. While the resulting efficiency tests cannot always be cast into linear programming problems, we discuss various solution strategies for the tests. Thereby we consider the question when does local optimality of the result guarantee global optimality. We also show how the decision maker's preferences, for example ranking information, can be adopted into DEA models in a simple manner. Finally, the approach with price restrictions is illustrated with an application to test noncompetitive behavior of the pulp and paper industries in Finland.
TL;DR: In this paper, the authors compare the performance of three flexible functional forms (the Translog, Symmetric McFadden, and the symmetric generalized Barnett) to properly infer theoretical properties and technology measurements when: (i) unobserved technological change is approximated by a time trend in the variable-cost-function specification and (ii) firms may be technically inefficient.
Abstract: Technological change is one of the most important determinants of the technological structure of the firm. Unfortunately, this crucial factor is often unobserved and must therefore be approximated. It is also well recognized that firms are not necessarily located on their efficient production frontier, a phenomenon known as technical inefficiency. This paper compares the performance of three flexible functional forms (the Translog, Symmetric McFadden and Symmetric Generalized Barnett) to properly infer theoretical properties and technology measurements when: (i) unobserved technological change is approximated by a time trend in the variable-cost-function specification and, (ii) firms may be technically inefficient. Our results indicate that no functional form dominates and that measuring the shifts of the production (cost) function has a clear and negative effect on the performance of the functional forms. Furthermore, we find that technical inefficiencies have a significant and negative effect on the measurement of, notably, returns to scale and the implicit rental price of capital. However, all forms over-reject theoretical properties and provide adequate technology measurements only on a sample-average basis. In addition, the performance of the functional forms is closely related to the true underlying rate of technological change.
TL;DR: In this article, the productivity offset or the X-factor used in setting price caps has a fundamental flaw when it is based on conventional growth accounting total factor productivity analysis, and an example of the problem and its correction, using the access charge for interstate service in telecommunications, is provided.
Abstract: Calculation of the productivity offset or the X-factor used in setting price caps has a fundamental flaw when it is based on conventional growth accounting total factor productivity analysis. The problem is discussed in the context of incentive regulation used by the Federal Communications Commission in the United States and the appropriate correction is indicated. An example of the problem and its correction, using the access charge for interstate service in telecommunications, is provided. The correction shows that the appropriate X-factor is 12 percent greater than that based on conventional growth accounting total factor productivity analysis.