Showing papers on "Inefficiency published in 2006"
TL;DR: In this paper, the authors show that informational shrouding flourishes even in highly competitive markets, even in markets with costless advertising, and even when the shrouding generates allocational inefficiencies.
Abstract: Bayesian consumers infer that hidden add-on prices (e.g., the cost of ink for a printer) are likely to be high prices. If consumers are Bayesian, firms will not shroud information in equilibrium. However, shrouding may occur in an economy with some myopic (or unaware) consumers. Such shrouding creates an inefficiency, which firms may have an incentive to eliminate by educating their competitors' customers. However, if add-ons have close substitutes, a "curse of debiasing" arises, and firms will not be able to profitably debias consumers by unshrouding add-ons. In equilibrium, two kinds of exploitation coexist. Optimizing firms exploit myopic consumers through marketing schemes that shroud high-priced add-ons. In turn, sophisticated consumers exploit these marketing schemes. It is not possible to profitably drive away the business of sophisticates. It is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms. We show that informational shrouding flourishes even in highly competitive markets, even in markets with costless advertising, and even when the shrouding generates allocational inefficiencies.
956 citations
TL;DR: This paper explored the role of the caste system in shaping career choices by gender in Bombay using new survey data on school enrollment and income over the past 20 years and found that male working-class-lower-caste networks continue to channel boys into local language schools that lead to the traditional occupation, despite the fact that returns to nontraditional white-collar occupations rose substantially in the 1990s, suggesting the possibility of a dynamic inefficiency.
Abstract: This paper addresses the question of how traditional institutions interact with the forces of globalization to shape the economic mobility and welfare of particular groups of individuals in the new economy. We explore the role of one such traditional institution-the caste system-in shaping career choices by gender in Bombay using new survey data on school enrollment and income over the past 20 years. We find that male working-class-lower-caste-networks continue to channel boys into local language schools that lead to the traditional occupation, despite the fact that returns to nontraditional white-collar occupations rose substantially in the 1990s, suggesting the possibility of a dynamic inefficiency. In contrast, lower-caste girls, who historically had low labor market participation rates and so did not benefit from the network, are taking full advantage of the opportunities that became available in the new economy by switching rapidly to English schools.
530 citations
TL;DR: In this paper, the authors assess the relative technical efficiency of institutions operating in a market that has been significantly affected by environmental and market factors in recent years, the Hong Kong banking system.
Abstract: This paper assesses the relative technical efficiency of institutions operating in a market that has been significantly affected by environmental and market factors in recent years, the Hong Kong banking system. These environmental factors are specifically incorporated into the efficiency analysis using the innovative slacks-based, second stage Tobit regression approach advocated by Fried et al. [Fried, H.O., Schmidt, S.S., Yaisawarng, S., 1999. Incorporating the operating environment into a nonparametric measure of technical efficiency. Journal of Productivity Analysis 12, 249–267]. A further innovation is that we also employ Tone’s [Tone, K., 2001. A slacks-based measure of efficiency in data envelopment analysis. European Journal of Operational Research 130, 498–509] slacks-based model (SBM) to conduct the data envelopment analysis (DEA), in addition to the more traditional approach attributable to Banker, Charnes and Cooper (BCC) [Banker, R.D., Charnes, A., Cooper, W.W., 1984. Some models for estimating technical and scale efficiencies in data envelopment analysis. Management Science 30, 1078–1092]. The results indicate: high levels of technical inefficiency for many institutions; considerable variations in efficiency levels and trends across size groups and banking sectors; and also differential impacts of environmental factors on different size groups and financial sectors. Surprisingly, the accession of Hong Kong to the People’s Republic of China, episodes of financial deregulation, and the 1997/1998 South East Asian crisis do not seem to have had a significant independent impact on relative efficiency. However, the results suggest that the impact of the last-mentioned may have come via the adverse developments in the macroeconomy and in the housing market.
304 citations
TL;DR: In this article, a semi-parametric model of the education production process using a two-stage procedure was proposed to estimate the efficiency of expenditure in education provision by comparing the output (PISA results) from the educational system of 25, mostly OECD, countries with resources employed (teachers per student, time spent at school).
285 citations
TL;DR: In this paper, the authors analyzed cost and profit efficiencies in commercial banking in eight Central and Eastern European countries that became new members to the European Union and examined the impact of foreign ownership on performance.
Abstract: This paper analyses cost and profit efficiencies in commercial banking in the eight Central and Eastern European countries that became new members to the European Union. Common stochastic cost and profit frontiers with country-specific variables are employed in order to take into account macro-economic and financial sector conditions that vary over time and across countries. The impact of foreign ownership on performance is also examined. The results indicate a wide range of cost and profit inefficiency scores across countries and across different size groups. All banking systems in the sample display significant levels of cost and profit inefficiency and there does not seem to be any continuous improvement in performance over time. There is also some evidence that foreign banks perform, on average, better than domestic banks.
254 citations
TL;DR: In this article, the authors presented estimates of Korean bank inefficiency and productivity change for the period 1992-2002 that are derived from the directional technology distance function, and found that technical progress during the period was more than enough to offset efficiency declines so that the banking industry experienced productivity growth.
Abstract: In this paper we present estimates of Korean bank inefficiency and productivity change for the period 1992–2002 that are derived from the directional technology distance function. Our method controls for loan losses that are an undesirable by-product arising from the production of loans and allows the aggregation of individual bank inefficiency and productivity growth to the industry level. Our findings indicate that technical progress during the period was more than enough to offset efficiency declines so that the banking industry experienced productivity growth.
251 citations
TL;DR: In this article, the authors use the directional output distance function to derive estimates of production inefficiency, shadow prices for polluting outputs, and associated pollution costs, and find that the pollution costs from the runoff and leaching of pesticides are 6% of crop and animal revenues and are highest in the Midwest and lowest in the Western states.
229 citations
TL;DR: In this article, the efficiency and scale properties of 104 of Europe's container terminals with annual throughput of over 10,000 TEUs1 in 2003, distributed across 29 European countries, are derived using data envelopment analysis.
Abstract: This paper investigates the efficiency of container terminals within the context of global supply chain management. The efficiency and scale properties of 104 of Europe's container terminals with annual throughput of over 10,000 TEUs1 in 2003, distributed across 29 European countries, are derived using data envelopment analysis. The main findings are that significant inefficiency pervades most of the terminals under study and that large-scale production tends to be associated with higher efficiency. Terminals in the British Isles and Western Europe were found to be the most efficient, compared to their counterparts with the lowest efficiency in Scandinavian and Eastern European countries.
218 citations
TL;DR: In this article, the authors examined how the development of financial intermediation influenced China's economic growth during the post-1978 reform period and showed that China's financial intermediary development contributes to its rapid economic growth through two channels: substitution of loans for state budget appropriation and mobilization of household savings.
217 citations
TL;DR: In this article, the authors make a contribution to categorising explanations of noncompliance of EU tendering directives and report on a survey study to the impact of these reasons on compliance with the directives.
Abstract: Purpose – The purpose of this paper is to make a contribution to categorising explanations of non‐compliance of EU tendering directives and to report on a survey study to the impact of these reasons on compliance with the directives.Design/methodology/approach – A literature review resulted in a conceptual model and related hypotheses, pointing at four potential reasons for (non‐)compliance: the purchaser's familiarity with the rules, the perceived inefficiency, organisational incentives to comply, and the expected resistance and readiness of suppliers to take action in case of non‐compliance. The paper uses data from a survey among 147 responding purchasing professionals of the Dutch Ministry of Defence.Findings – The empirical findings indicate that both purchaser's familiarity with the rules and organisational incentives have a positive, statistically significant impact on compliance. Nor the alleged inefficiency of the directives, nor the expected supplier resistance seem to influence the compliance w...
203 citations
TL;DR: In this paper, the authors show that bailouts that reduce ex post inefficiency will sometimes enhance the incentives for governments to take costly adjustment effort, and this model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.
TL;DR: In this article, the authors examined the three facets of technology: its creation, dispersion and absorption, and investigated whether differences in absorptive capacity help to explain cross-country differences in the level of productivity.
Abstract: In this paper, we examine the three facets of technology: its creation, dispersion and absorption. We investigate whether differences in absorptive capacity help to explain cross-country differences in the level of productivity. We utilize stochastic frontier analysis to investigate two potential sources of this inefficiency – differences in human capital and R&D – for nine industries in 12 Organization for Economic Co-operation and Development (OECD) countries over the period 1973–91. We find that inefficiency in production does indeed exist and it depends upon the level of human capital of the country’s workforce. Evidence that the amount of R&D an industry undertakes is also important is less robust.
TL;DR: In this paper, the authors examine the recent changes in public management in Malaysia in relation to new public management and assess their impacts on administrative performance and service delivery and show that although reforms are steps in the right direction, their impacts so far have been modest.
Abstract: Purpose – The present paper seeks to examine the recent changes in public management in Malaysia in relation to new public management and assess their impacts on administrative performance and service delivery.Design/methodology/approach – The scope of the paper is limited to the period of 1981 till the present date. The paper is mainly based on secondary sources of information, and it uses a combination of descriptive and analytical methods.Findings – The paper shows that although reforms are steps in the right direction, their impacts so far have been modest. Despite reforms and a few improvements they have made in service provisions, the public bureaucracy in Malaysia continues to suffer from inefficiency, corruption and a host of other problems.Originality/value – The paper shows the gap between rhetoric and reality of public management reforms in Malaysia. It is expected to be of great value to all those interested in public management – be they in academia or in policy circles.
TL;DR: This article found that firm size is positively related to financial intermediary development, the efficiency of the legal system and property rights protection in 44 countries using data on the largest industrial firms for 44 countries.
Abstract: Theory does not predict an unambiguous relationship between a country’s financial and legal institutions and firm size. Using data on the largest industrial firms for 44 countries, we find that firm size is positively related to financial intermediary development, the efficiency of the legal system and property rights protection. We do not find any evidence that firms are larger in order to internalize the functions of the banking system or to compensate for the general inefficiency of the legal system.
TL;DR: In this article, the authors proposed a data envelopment analysis (DEA) model for measuring the operational efficiency of various profit or non-profit organizations in the third-party logistics market.
Abstract: Purpose – In an era of downsizing and financial cutbacks, the operational efficiency of third party logistics providers (3PLs) dictates their competitiveness and/or survival. In an effort to help 3PLs enhance productivity and price leverage in the increasingly competitive third party logistics market, this paper aims to develop a meaningful set of financial benchmarks that will dictate best practices. In particular, the paper proposes a data envelopment analysis (DEA) that is proven to be useful for measuring the operational efficiency of various profit or non‐profit organizations.Design/methodology/approach – Using the examples of major 3PLs in the USA, this paper is the first to illustrate the usefulness of DEA for measuring the competitiveness of third party logistics services. The proposed DEA model also helps 3PLs identify potential sources of inefficiency and provide useful hindsight for the continuous improvement of operational efficiency. Furthermore, the proposed DEA model not only helps 3PLs est...
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TL;DR: In this article, the authors look for empirical support for the hypothesis that there is a positive relationship between the levels of corporate governance quality across firms and the relative efficiency levels of these firms.
Abstract: In this study, we look for empirical support for the hypothesis that there is a positive relationship between the levels of corporate governance quality across firms and the relative efficiency levels of these firms. This hypothesis is related to Liebenstein's idea of X-efficiency. We use the data envelopment analysis (DEA)estimator to obtain proxies for X-[in]efficiency of firms in our sample and then analyze them with respect to different ownership structures by comparing distributions and aggregate efficiencies across different groups. We also use truncated regression with bootstrap, following Simar and Wilson (2003), to infer on relationship of inefficiency to various indicators of quality of corporate governance, ownership variables, as well as industry and year specific dummies. The data is coming from 7 industries in Ukraine.
TL;DR: In this paper, the authors focus on the assumption of a common efficient frontier when performing an efficiency study for the banking sector and use exogenously computed input prices rather than the normally used endogenous input prices.
Abstract: In this paper we focus on the assumption of a common efficient frontier when performing an efficiency study for the banking sector. The fact that environmental factors that are not appropriately controlled may easily bias efficiency estimates. First, we estimate a common cost and profit frontier. In this first stage, as an innovation to the literature, we use exogenously computed input prices rather than the normally used endogenous input prices. Second, we regress the estimated inefficiencies on a set of a bank’s strategic choices, local banking market variables, and local (regional) macro variables. For the analysis, we use a unique dataset of 401 largely independent cooperative local banks in the Netherlands for the years 1998 and 1999. Our results show that the use of exogenous input prices rather than endogenous input prices is particularly important for the cost frontier as the spread in cost inefficiencies becomes larger and more plausible. Our second stage results suggest that most of the estimated inefficiency indeed is managerial (X-) inefficiency. Environmental factors do play a role, but only to a limited extent.
TL;DR: In this article, the authors established a procedure for evaluation of the efficiency of the water supply and found that the proposed indicators have a discriminating capability in the analysis of the service, and to reject criticisms traditionally assigned to the sensitivity of the data envelopment analysis (DEA) technique in relation to degrees of freedom.
Abstract: In this work, we established a procedure for evaluation of the efficiency of the water supply. This procedure has allowed us to find that the proposed indicators have a discriminating capability in the analysis of the service, and to reject criticisms traditionally assigned to the sensitivity of the data envelopment analysis (DEA) technique in relation to degrees of freedom. The results obtained show that the population density, as a factor that defines one of the particular characteristics of the surroundings of each municipality, has a statistically significant impact on the indexes of efficiency, this affirmation not being extended to the public or private ownership of the service. The scale inefficiency is higher than the technical inefficiency. These typologies of efficiency are, principally, motivated by the supply side of the service, which is specially linked with the necessary infrastructure. The demand of the citizens is satisfied with a behavior close to optimal.
TL;DR: In this article, the authors used bank balance sheet data for Croatia for 1994 to 2000 to estimate a Fourier-flexible frontier cost function and found that better cost efficiency is associated with a lower likelihood of failure, suggesting that better risk management and better cost management are signs of better management.
Abstract: Using bank balance sheet data for Croatia for 1994 to 2000, this study estimates a Fourier-flexible frontier cost function. Specification tests indicate that the stochastic frontier model with a Fourier-flexible form with a truncated normal distribution of the inefficiency term allowing for time varying cost efficiency is preferred. The results show that new private and privatized banks, contrary to some expectations, are not the most efficient banks through most of the period. Privatization also does not seem to have an immediate effect on improved efficiency. However, better cost efficiency is associated with a lower likelihood of failure, suggesting that better risk management and better cost management are signs of better management in general. Finally, foreign banks have substantially better efficiency scores than all categories of domestic banks.
TL;DR: This paper proposes a stochastic frontier model that allows for technical in efficiency effects and dynamic technical inefficiency, and uses Bayesian inference procedures organized around data augmentation techniques to provide inferences.
Abstract: An important issue in models of technical efficiency measurement concerns the temporal behaviour of inefficiency. Consideration of dynamic models is necessary but inference in such models is complicated. In this paper we propose a stochastic frontier model that allows for technical inefficiency effects and dynamic technical inefficiency, and use Bayesian inference procedures organized around data augmentation techniques to provide inferences. Also provided are firm-specific efficiency measures. The new methods are applied to a panel of large US commercial banks over the period 1989–2000. Copyright © 2006 John Wiley & Sons, Ltd.
TL;DR: In this paper, the authors look for empirical support for the hypothesis that there is a positive relationship between the levels of corporate governance quality across firms and the relative efficiency levels of these firms.
Abstract: In this study, we look for empirical support for the hypothesis that there is a positive relationship between the levels of corporate governance quality across firms and the relative efficiency levels of these firms. This hypothesis is related to Leibenstein's idea of X-efficiency. We use the data envelopment analysis (DEA) estimator to obtain proxies for X-[in]efficiency of firms in our sample and then analyze them with respect to different ownership structures by comparing distributions and aggregate efficiencies across different groups. We also use truncated regression with bootstrap, following Simar and Wilson Estimation and influence in two stage, semi-parametric models of production process, Simar and Zelenyuk (2003) to infer on relationship of inefficiency to various indicators of quality of corporate governance, ownership variables, as well as industry and year specific dummies. The data is coming from seven industries in Ukraine.
TL;DR: In this paper, the authors estimate a stochastic frontier production model on a large panel of salmon aquaculture farms, and find econometric support for positive agglomeration externalities on both the production frontier and technical inefficiency.
Abstract: Agglomeration externalities can have positive effects on both the production possibility frontier and technical inefficiency of firms. Increased levels of localized knowledge spillovers and substitution of internal inputs with external inputs may lead to fewer errors in decision-making and execution of production tasks, thus causing firms to become technically more efficient relative to the production frontier. When we estimate a stochastic frontier production model on a large panel of salmon aquaculture farms, we find econometric support for positive agglomeration externalities on both the production frontier and technical inefficiency.
TL;DR: The existing level of pure technical and scale inefficiency of the district hospitals is considerably high and may negatively affect the government's initiatives to improve access to quality health care and scaling up of interventions that are necessary to achieve the health-related Millennium Development Goals.
Abstract: In most countries of the sub-Saharan Africa, health care needs have been increasing due to emerging and re-emerging health problems. However, the supply of health care resources to address the problems has been continuously declining, thus jeopardizing the progress towards achieving the health-related Millennium Development Goals. Namibia is no exception to this. It is therefore necessary to quantify the level of technical inefficiency in the countries so as to alert policy makers of the potential resource gains to the health system if the hospitals that absorb a lion's share of the available resources are technically efficient. All public sector hospitals (N = 30) were included in the study. Hospital capacity utilization ratios and the data envelopment analysis (DEA) technique were used to assess technical efficiency. The DEA model used three inputs and two outputs. Data for four financial years (1997/98 to 2000/2001) was used for the analysis. To test for the robustness of the DEA technical efficiency scores the Jackknife analysis was used. The findings suggest the presence of substantial degree of pure technical and scale inefficiency. The average technical efficiency level during the given period was less than 75%. Less than half of the hospitals included in the study were located on the technically efficient frontier. Increasing returns to scale is observed to be the predominant form of scale inefficiency. It is concluded that the existing level of pure technical and scale inefficiency of the district hospitals is considerably high and may negatively affect the government's initiatives to improve access to quality health care and scaling up of interventions that are necessary to achieve the health-related Millennium Development Goals. It is recommended that the inefficient hospitals learn from their efficient peers identified by the DEA model so as to improve the overall performance of the health system.
TL;DR: In this article, the authors analyzed technical inefficiency in a rainfed lowland rice environment in Central Luzon using a stochastic frontier production function with a heteroskedastic error structure.
Abstract: There have been many previous studies of technical inefficiency in rice production in the Philippines, but none has focused simultaneously on production risk and technical inefficiency at the farm level. Rice production is inherently risky because of the heterogeneous production environment. In this study, we analyze technical inefficiency in a rainfed lowland rice environment in Central Luzon using a stochastic frontier production function with a heteroskedastic error structure. An 8-year panel dataset collected from 46 rainfed rice farmers was used to estimate flexible functional specifications. Over the whole period, the average technical efficiency was found to be 79 percent. Results indicate that there is a high degree of variability in technical efficiency estimates, which can be attributed to the instability of farming conditions in the rainfed lowland environment. Mean output was signifificantly influenced by area planted to rice, labor and the amount of fertilizer used. Consequently, these inputs were found to be risk-increasing, whereas herbicide was found to be a risk-reducing input.
TL;DR: In this article, the authors investigated the efficiency of household investment decisions in a unique dataset containing the disaggregated wealth and income of the entire population of Sweden and found that while a few households are very poorly diversified, the cost of diversification mistakes is quite modest for most of the population.
Abstract: This paper investigates the efficiency of household investment decisions in a unique dataset containing the disaggregated wealth and income of the entire population of Sweden. The analysis focuses on two main sources of inefficiency in the financial portfolio: underdiversification of risky assets ("down") and nonparticipation in risky asset markets ("out"). We find that while a few households are very poorly diversified, the cost of diversification mistakes is quite modest for most of the population. For instance, a majority of participating Swedish households are sufficiently diversified internationally to outperform the Sharpe ratio of their domestic stock market. We document that households with greater financial sophistication tend to invest more efficiently but also more aggressively, so the welfare cost of portfolio inefficiency tends to be greater for these households. The welfare cost of nonparticipation is smaller by almost one half when we take account of the fact that nonparticipants would be unlikely to invest efficiently if they participated in risky asset markets.
TL;DR: In this article, a cost frontier model is estimated for a seven-year panel of 44 Italian transit companies run under two different regulatory schemes (cost plus or fixed-price) using the approach proposed by Kumbhakar et al.
Abstract: The main objective of this paper is to investigate the way subsidization mechanisms affect the cost efficiency of public transit systems, taking into account the role played by the environmental characteristics of each network. A cost frontier model is estimated for a seven-year panel of 44 Italian transit companies run under two different regulatory schemes (cost-plus or fixed-price), using the approach proposed by Kumbhakar et al. (1991), Huang and Liu (1994) and Battese and Coelli (1995). The main evidence is that, given network characteristics, transit operators with high-powered incentive contracts (fixed-price subsidies) exhibit lower distortions from the minimum costs. Environmental conditions (network speed levels) also have a significant impact on inefficiency differentials and influence the efficacy of incentive regulation. Overall, these results highlight a scope for transport policy to increase X-efficiency. Furthermore, they stress the importance of incentive theory and modern regulatory economics for the production analysis of regulated utilities.
TL;DR: This article developed a model in which firms set impersonal salary levels before matching with workers, and found that the best firms gain the most from the system while wages become compressed, implying little inefficiency.
Abstract: We develop a model in which firms set impersonal salary levels before matching with workers. Wages fall relative to any competitive equilibrium while profits rise almost as much, implying little inefficiency. Furthermore, the best firms gain the most from the system while wages become compressed. In light of our results, we discuss the performance of alternative institutions and the recent antitrust case against the National Resident Matching Program.
TL;DR: In this paper, the authors provide evidence on the efficiency of real GDP growth forecasts by testing whether forecast revisions are uncorrelated and show that forecast revisions show a high degree of serial correlation.
Abstract: Using forecasts from Consensus Economics Inc., we provide evidence on the efficiency of real GDP growth forecasts by testing whether forecast revisions are uncorrelated. As the forecast data used are multi-dimensional—18 countries, 24 monthly forecasts for the current and the following year and 16 target years—the panel estimation takes into account the complex structure of the variance–covariance matrix due
to propagation of shocks across countries and economic linkages among them. Efficiency is rejected for all 18 countries: forecast revisions show a high degree of serial correlation. We then develop a framework for characterizing the nature of the inefficiency in forecasts. For a smaller set of countries, the G-7, we estimate a VAR model on forecast revisions. The degree of inefficiency, as mananifested in the serial correlation of forecast revisions, tends to be smaller in forecasts of the USA than in forecasts for European countries. Our framework also shows that one of the sources of the inefficiency in a country’s forecasts is resistance to utilizing foreign news. Thus the quality of forecasts for many of these countries can be significantly improved if forecasters pay more attention to news originating from outside their respective countries. This is particularly the case for Canadian and French forecasts, which would gain by paying greater attention than they do to news from the USA and Germany, respectively.
TL;DR: In this article, the authors identify the major determinants of profitability in the Korean banking sector for the period of 1992-2002 by testing the market structure hypothesis against the efficient structure hypothesis.
TL;DR: This article found that hitters' salaries during this period did not accurately reflect the contribution of various batting skills to winning games, and that knowledge of its existence, and the ability to exploit it, enabled the Oakland Athletics to gain a substantial advantage over their competition.
Abstract: In his 2003 book Moneyball, financial reporter Michael Lewis made a striking claim: the valuation of skills in the market for baseball players was grossly inefficient. The discrepancy was so large that when the Oakland Athletics hired an unlikely management group consisting of Billy Beane, a former player with mediocre talent, and two quantitative analysts, the team was able to exploit this inefficiency and outproduce most of the competition, while operating on a shoestring budget. The publication of Moneyball triggered a firestorm of criticism from baseball insiders (Lewis, 2004), and it raised the eyebrows of many economists as well. Basic price theory implies a tight correspondence between pay and productivity when markets are competitive and rich in information, as would seem to be the case in baseball. The market for baseball players receives daily attention from the print and broadcast media, along with periodic in-depth analysis from lifelong baseball experts and academic economists. Indeed, a case can be made that more is known about pay and quantified performance in this market than in any other labor market in the American economy. In this paper, we test the central portion of Lewis’s (2003) argument with elementary econometric tools and confirm his claims. In particular, we find that hitters’ salaries during this period did not accurately reflect the contribution of various batting skills to winning games. This inefficiency was sufficiently large that knowledge of its existence, and the ability to exploit it, enabled the Oakland Athletics to gain a substantial advantage over their competition. Further, we find