Government Interventions, Market Imperfections, and Technical Inefficiency in a Mixed Economy: A Case Study of Indian Agriculture

This paper uses an output-maximizing framework in the presence of expenditure constraint to measure output loss and input misallocation resulting from market distortions and technical inefficiency. A generalized indirect production function accommodating allocative distortions and technical inefficiency is used. Allocative distortions are captured in terms of effective (shadow) prices in which distortion parameters are both farm- and input-specific. The stochastic frontier approach is used to model technical inefficiency. Using farm-level data on 105 jute growers from West Bengal, India, we find that average output losses due to allocative distortions and technical inefficiency are 6.3% and 14%, respectively.     

Allocative efficiency measurement revisited—Do we really need input prices?

The traditional approach to measuring allocative efficiency exploits input prices, which are rarely known at the firm level. This paper proves allocative efficiency can be measured as a profit-oriented distance to the frontier in a profit-technical efficiency space. This new approach does not require information on input prices. To validate the new approach, we perform a Monte-Carlo experiment providing evidence that the estimates of allocative efficiency employing the new and the traditional approach are highly correlated. Finally, as an illustration, we apply the new approach to a sample of about 900 enterprises from the chemical manufacturing industry in Germany.     

The macroeconomic and food security implications of price interventions in the Philippine rice market

The Philippine government has a number of policy interventions in the domestic rice market aimed at promoting national food security. This paper examines the economy-wide and food security implications of three of the main policies: a ceiling on prices paid by rice consumers; a floor on prices received by paddy producers; and a subsidy on prices paid for seeds by paddy farmers. These programmes have been subject to domestic criticism on allocative efficiency and distributional grounds. We examine the effects of removing the programmes using an economy-wide model with detailed treatment of agricultural activity, land use, and food security measures. We find that the programmes make a small contribution to food security, for a modest budgetary outlay. The allocative efficiency gains available from ending the programmes are small, and may be outweighed by the potential for adverse short-run macroeconomic consequences.     

Economic inefficiency in a revenue setting: the Norwegian whitefish fishery

The main focus in the inefficiency literature is on suboptimal input use and how this causes increased costs, due to technical and allocative inefficiency. Production or cost functions are then typically used to describe the underlying technology of the firm. The possible revenue loss, due to lower than maximum production levels and suboptimal output mix, has received substantially less attention. By using a revenue function to measure inefficiency, the focus, model and estimation technique presented in this article differ from those of previous studies. A shadow revenue model is used to decompose revenue inefficiency into its technical and allocative components, in which the allocative inefficiency is due to a suboptimal output mix. The approach is illustrated using panel data of Norwegian whitefish trawlers. The results reveal large inefficiencies, with respect to output levels as well as output mix, indicating that this can be an important part of the picture when investigating economic inefficiency. To identify the determinants of revenue inefficiency, we conduct a second-step regression, in which technical and allocative inefficiency is regressed upon a set of explanatory variables. The inefficiencies are partly explained by the management system and fleet structure.     

Evaluating the productive performance of UK universities as cost-constrained revenue maximizers: an empirical analysis

The study presents an empirical analysis of the relative revenue efficiency of UK universities in providing teaching and research. With government policies pressurizing the largely public-funded universities to secure efficiency in both input usage and output revenue, university producers are modelled as cost-constrained revenue maximizers. Taking explicit account of the quality of research output, the methodology uses linear programming techniques to construct nonparametric cost indirect production frontiers and to compute revenue efficiency relative to these frontiers. Revenue efficiency is then decomposed into its (output) allocative and technical components. Further analysis investigates the sources of allocative and technical inefficiencies.     

Price-Cap Regulation and Inefficiency in Relative Pricing

The allocative efficiency properties of three price-cap schemes are compared. The scheme that uses lagged quantities in the price index and has a fixed cap works well when the firm is myopic but generates inefficient relative prices otherwise. With myopia prices are efficient and welfare is higher than with equal pricing, but the gain to the firm comes at the expense of lower consumer surplus. When the firm is not myopic pricing can be so inefficient that steady-state welfare is below the no-regulation level.     

An efficiency and welfare classification of rationing by waiting in the presence of bribery

Governments often allocate commodities at low prices and on a first-come-first-served basis (rationing by waiting), while bureaucrats who distribute the commodities usually take bribes. A model is developed to classify the efficiency implications of bribery, and socially optimal pricing schemes in rationing by waiting. If the rationed good and individual income spent on other goods (‘other’ income) are ‘complements’, then bribery may enhance allocative efficiency, and a ‘dual pricing’ scheme can augment social welfare. However, if the rationed commodity and ‘other’ income are ‘substitutes’, then bribery may not improve allocative efficiency, and distributing the rationed commodity free is socially optimal.     

Farmers’ performance and subject pool effect in decentralized bargaining markets

We report results from a decentralized bargaining market experiment conducted with farmers and students. Our results indicate that despite its bad reputation, performance is highly efficient (although not as efficient as the competitive equilibrium prediction). Farmers and students perform similarly regarding quantities, prices, and allocative efficiencies, but not regarding payoff allocations between buyers and sellers.     

The output efficiency of minority-owned banks in the United States

This study extends prior research on minority-owned banks by examining their output performance. Using a deterministic output distance function, both technical and allocative efficiency are measured. The findings indicate that, with a given set of inputs, minority-owned banks produce less outputs than a comparable group of nonminority-owned banks. Also, both minority-owned banks and nonminority-owned banks fail to allocate outputs in revenue-maximing proportions.     

Social Preferences and Price Cap Regulation

This paper analyzes the allocative properties of price cap regulation under very general hypotheses on the nature of society's preferences. We propose a generalized price cap that ensures the convergence to optimal (second best) prices in the long-run equilibrium for virtually any form of the welfare function. Hence, the result of the convergence to Ramsey prices of Laspeyres-type price cap regulation is a particular instance of our more general result. We also provide an explicit and relatively easy to calculate and implement generalized price cap formula for distributionally weighted utilitarian welfare functions, as suggested by Feldstein (1972a).     

Inflation, Shadow Prices and the EMU: Evidence From Greece

The paper examines whether inflation systematically distorts the informational content of price signals. A shadow cost function is specified, and the deviation of shadow from actual prices is modeled as a function of the level of economy‐wide inflation, as well as other conditioning variables like budget deficits and changes in inflation rate. It is found that inflation is associated with significant allocative costs in most Greek manufacturing sectors. Measures of cost gains resulting from Greece's convergence towards the EMU are provided and the policy implications are explored.     

Indexation of UNCTAD core commodity prices by buffer stocks or export quotas?: A comparison of the benefits for two developing economies

General equilibrium models are used to study the resource allocative and income implications for the Ivory Coast and Kenya of indexation of agricultural commodity prices. Two indexation methods are investigated, (i) buffer stock transactions, and (ii) export quota entitlements. The results suggest that there are efficiency losses associated with the buffer stock option which reduce the GDP gains below that indicated by the pure terms of trade gains. Efficiency gains associated with the export quota method however result in GDP increases above those indicated by the pure terms of trade gains.     

Load management programs,cross-subsidies and transaction costs: the case of self-rationing

Load management programs are used by electric utilities to decrease peak consumption. Although they are generally offered simultaneously with regular service, economic models of their allocative efficiency are based on the implicit assumption that they are the only service available. We present a model in which participation to a particular load management program, called self-rationing, is optional. We show that, under a break-even constraint, welfare-maximizing prices involve a subsidy from the self-rationing program to regular service whenever peak demand is less elastic than base demand. If cross-subsidization is precluded, regular service is viable only if there exist transaction costs to participate in the self-rationing program.     

Reconsideration of the P-bar model of gradual price adjustment

This paper compares the P-bar model of price adjustment with the currently dominant Calvo specification. Theoretically, the P-bar model is more attractive as it depends on adjustment costs for physical quantities rather than nominal prices, while incorporating a one-period information lag. Furthermore, the resulting adjustment relation is more completely free of “money illusion,” in terms of dynamic relationships, and therefore satisfies the natural-rate hypothesis of Lucas [1972a. Econometric testing of the natural rate hypothesis. In: Eckstein, O. (Ed.), The Econometrics of Price Determination. Board of Governors of the Federal Reserve System], which is not satisfied by the Calvo model in any of its variants. Along the way, it shows that both the P-bar and Calvo models can be formulated in distinct versions in which current real wages are, or are not, allocative. Quantitatively, for a given calibration of the demand parameters, the implied time-series properties of the inflation rate, output gap, and nominal interest rate are determined for various policy parameters, and are compared with quarterly data for the US economy. Neither model dominates but, overall, the comparison seems somewhat more favorable to the P-bar model and certainly does not provide support for the dominant position held by the Calvo model in current monetary policy analysis.     

中国地区工业生产绩效:结构差异、制度冲击及动态表现

本文利用省级面板数据研究转型过程中中国地区工业生产绩效的动态表现。基于Kumbhakar(2000)的方法,我们将TFP增长分解为四个因素的变化。结果发现:(1)自1988年以来各地区工业部门的TFP增长率都出现了增长的趋势,其首要推动力在于技术进步率的不断提高;(2)与此同时,技术效率和要素配置效率出现了恶化,而规模效率则从恶化走向了改善。(3)上世纪90年代末的国企改革对各地区的工业生产绩效的构成造成了普遍的冲击,而民营化程度较高的东部地区受到的冲击最小。(4)通过分析绩效差异的源泉,我们进一步确认90年代末国企改革的制度性冲击促成了工业规模效率的提高,却导致了要素配置效率的短期下降,而劳动力教育水平和非国有经济比重的提高,则有助于促进工业技术进步、改善配置效率。伴随着制度变革的经济整体转型正从多个向度重构着中国地区工业化的版图。     

Incomplete Markets, Allocative Efficiency, and the Information Revealed by Prices

We compare rational expectations equilibria with different degrees of information revelation through prices. These equilibria arise in a two-period exchange economy with finitely many states and signals, multiple commodities and incomplete financial markets for nominal assets. We show that there are always equilibria where information is redundant in the sense of being of no value to the uninformed traders. We give conditions under which for a generic set of economies, parametrized by endowments and utilities, there exist open sets of equilibria for which allocative and informational efficiency are independent, with implications for monetary policy. Journal of Economic Literature Classification Numbers: D52, D60, D82, E52.     

风险厌恶与国有寡占市场的资源配置效率——以我国成品油市场为例

作为传统寡占理论与我国国情相结合的产物,国有寡占市场受到越来越多的关注。本文以风险厌恶倾向为切入点,从缺少职业经理人市场、优越的生存环境和目标多重性三方面分析了国有寡占企业风险厌恶倾向的成因,并构建理论模型分析这种风险厌恶倾向对国有寡占市场资源配置效率的影响。结果表明,风险厌恶倾向使国有寡占企业面对成本风险时,价格和产量相对利润最大化值分别升高和降低,面对需求风险时,价格和产量同时低于利润最大化值,两种情况都使国有寡占市场资源配置效率降低,而固定成本的升高会进一步加大资源配置效率的损失。本文最后以我国石化行业成品油市场为案例,验证理论模型的结论,并提出了政策建议。     

Determining output shadow prices for a cost-constrained technology

We develop a method for computing output shadow prices when total cost and input prices are exogenous, using the indirect output distance function of Shephard (1974). We show that indirect distance function shadow price imputations for output prices are the same to a proportional constant as marginal cost imputations. We motivate our results by relating them to the problem of valuing the output of nonprofit institutions, to some measurement issues for noncompetitive industries, and to a problem of imputing sales of the commercial banking industry to consuming sectors of the economy in the national income accounts.Thanks are due to a very informed and helpful referee.Rolf Färe supported by IHE, Lund, Sweden.     

What drives the global official/policy interest rate?

We construct a GFAVAR model with newly released global data from the Federal Reserve Bank of Dallas to investigate the drivers of global official/policy interest rate. We find that 66% of movement in global official/policy interest rates is attributed to changes in global monetary aggregates (23%), oil prices (19%), global output (16%) and global prices (8%). Global official/policy interest rates respond significantly to increases in global output, inflation and oil prices. Increases in global policy interest rates are associated with reductions in global prices and global output. The response in official/policy interest rate for the emerging countries is more to global inflation, for the advanced countries (excluding the U.S.) is more to global output, and for the U.S. is to both global output and inflation.