A directional distance function approach for identifying the input/output status of medical residents

Previous empirical studies examining the impact medical residents have on hospital productivity have made a priori assumptions about whether medical residents are inputs (labour providing patient care) or outputs (students receiving mandatory training under the supervision of an attending physician) when specifying their estimating equations. We shed light on the role medical residents play in hospital production by using a data-driven parametric approach based on the directional technology distance function. Our primary goal is to assess the extent to which one of the two roles of medical residents empirically dominates the other and to see whether the role varies across different types of hospital. Using the American Hospital Association data from 1994 to 2010, we find that residents are inputs in all rural and public non-teaching hospitals, but they are outputs in urban-area not-for-profit teaching hospitals. We also demonstrate that the status of residents is related to the case-mix index and can vary with hospital size.     

VALUATION OF HOUSEHOLD PRODUCTION AT MARKET PRICES AND ESTIMATION OF PRODUCTION FUNCTIONS

This paper estimates household production functions directly, considers their characteristics, and compares them with previous indirectly estimated functions. Interviews with 135 Missoula, Montana area married couple households provided the data. The results suggest that endogeneity and a previous lack of output and capital data which led to the use of the indirect methodology are not insurmountable problems. The results tend to confirm the feasibility of directly measuring household outputs since the production function results are reasonable. Directly estimated household production functions offer the possibilities for estimation of short-term household output changes and testing hypotheses about households' economic behavior.     

Imposing monotonicity on outputs in parametric distance function estimations

The technology set involved in the estimation of a multi-output production frontier theoretically implies monotonicity on outputs. This is because an efficient firm cannot reduce the vector of outputs holding the vector of inputs fixed while it still belongs to the frontier. In empirical studies dealing with the estimation of parametric distance functions, this hypothesis is often violated by observations with far from average characteristics. To overcome this limitation, we propose a new approach for allowing the easy imposition of monotonicity on outputs in this context. This methodology is tested in the educational sector using Spanish student level data from the Programme for International Student Assessment (PISA) database. The results indicate that a nonnegligible 8.33% of the production units break the monotonicity assumption. Furthermore, although there is no statistically significant difference in efficiency distribution by school ownership, our methodology helps to detect a slight worse mathematical performance for students attending public schools.     

A hedonic-output-index-based approach to modeling polluting technologies

Despite some recent criticisms, the conventional radial distance function, which treats undesirable by-products as either frontier shifters or inputs, remains a popular go-to formulation of polluting production processes among practitioners. This unfading popularity is arguably driven by the ability of radial distance functions, unlike alternative directional distance functions, to allow for unit-free multiplicative changes in arguments as well as, by implicitly postulating the radial direction, to free researchers from the dilemma of having to explicitly choose the directional vector. In this paper, we offer a generalization of the standard radial distance function to polluting technologies that can accommodate undesirable by-products in a more economically meaningful way. Specifically, we propose modeling undesirable outputs via a hedonic output index, which is meant to ensure that pollutants are treated as outputs, as opposed to inputs or theoretically unregulated frontier shifters, while also recognizing their undesirable nature. By using a radial input distance function generalized to encompass an (unobservable) hedonic output index of desirable and undesirable outputs, we are able to meaningfully describe relationships between different products (including the complementarity of desirable and undesirable outputs) within producible output sets as well as to represent technically feasible polluting production possibilities given inputs. An empirical application of our methodology to the case of Dutch dairy farms in 2001–2009 demonstrates the complexity of interactions between outputs, thereby attesting to the value of more elaborate representations of production possibilities.     

Cournot duopoly with two production periods

We modify the Cournot model by allowing for two production periods before the market clears. The firms choose outputs simultaneously in the first period. These outputs become common knowledge and then the firms choose how much more to produce in the second period before the market clears. Any outcome on the outer envelope of the best-response functions between and including the firms' smallest Stackelberg outcomes is sustainable as a subgame perfect Nash equilibrium.     

Using panel data to estimate risk effects in seemingly unrelated production functions

In this paper, production functions in the form of seemingly unrelated regressions (SUR) with errors that are heteroscedastic and that contain cross-section and time components are proposed. These functions are distinguished from others in that they allow the risks (indicated by variances) of outputs to change in any direction in response to input changes. The SUR are then applied in the analysis of cross-section time-series data for rice, wheat and maize production in China.     

The cost-output relationship of banks revisited

This paper offers a different method for the analysis of economies to scale in banks. It concentrates on the characteristics of the cost surface rather than on those of the cost function. This facilitates a direct test for the existence of interproduct complementarity in banks. The paper suggests that the interest charges should be examined as part of the banks' operating costs. This study offers two main empirical results regarding a more efficient growth pattern and organizational structure of banks. First, it shows that a proportionate increase in bank outputs does not reduce the average costs of production, and secondly, it reveals that the production process of banks involves interproduct complementarity.     

Credit quality and technical efficiency in banking

We estimate banks’ technical efficiency using directional distance functions, a generalization of the radial distance functions that allow us to credit banks for their efforts to increase outputs and decrease resource use and bad loans. We find that once bad loans are considered, banks’ efficiency increases significantly. In addition, omitting bad loans may result in the underestimation of the performance of good credit quality banks. These results suggest that a significant aspect of banking production, credit quality, needs to be considered when evaluating banks’ performances for regulatory purposes.     

INDEX NUMBERS AND THE COMPUTATION OF FACTOR PRODUCTIVITY1

For purposes of analyzing the nature and meaning of index number formulas to be used in the calculation of factor productivity, a distinction is made between interetemporal comparison of factor productivity for a single country and contemporaneous comparison of factor productivity in two different countries. In the former case, the country in question is supposed ideally to be realizing fully its production possibilities, and the concern is seen as appraisal of shifts in such possibilities over time due to the advance of technological knowledge. Following Moorsteen such an advance is taken to be represented by the change in capacity to produce a standard mix of outputs per unit of a standard mix of inputs. Any mix might be standard, but those actually realized at the times in question are of particular interest. The index number formulas to be applied then depend on the assumed shape of the functions representing production possibilities. The conventional practice of aggregating output arithmetically and inputs geometrically, for example, is in order where production possibilities are given by an elaborated Cobb-Douglas function, but achieves only more or less approximate results otherwise. The analysis necessarily bears also on the prices at which inputs and outputs are to be valued. For the case of contemporaneous comparison of different countries, technological knowledge is taken ideally to be the same in the countries considered. Hence the concern is to gauge differences in production efficiency, i.e., realization of production possibilities. With production capacity understood to reflect any shortfall from possibilities, and hence production inefficiency in that sense, the analysis proceeds much as before, but given the fact of inefficiency determination of suitable prices for valuation of inputs and outputs becomes relatively difficult. Alternative expedients, none entirely satisfactory, are explored.     

(In)Efficient Environmental Policy with Interacting Pollutants

Many environmental problems involve the transformation of multiple harmful substances into one or more damage agents much in the same way as a firm transforms inputs into outputs. Yet environmental management differs from a firm’s production in one important respect: while a firm seeks efficient input allocation to maximize profit, an environmental planner allocates abatement efforts to render the production of damage agents as inefficient as possible. We characterize a solution to the multiple pollutants problem and show that the optimal policy is often a corner solution, in which abatement is focused on a single pollutant. Corner solutions may arise even in well-behaved problems with concave production functions and convex damage and cost functions. Furthermore, even concentrating on a wrong pollutant may yield greater net benefits than setting uniform abatement targets for all harmful substances. Our general theoretical results on the management of flow and stock pollutants are complemented by two numerical examples illustrating the abatement of eutrophying nutrients and greenhouse gases.     

Production risk in multi-output industries: estimates from Norwegian dairy farms

Farmers who produce multiple outputs are portfolio managers in the sense that they use inputs to balance expected economic return and variance of return. This article estimates the structure of the stochastic multioutput production technology in Norwegian dairy farming, allowing for a more flexible specification of the technology than previous studies. We find that an increase in input levels leads primarily to higher output variability, and that inputs also influence the covariance of shocks between outputs. Risk reducing effects of inputs on outputs are primarily present in the covariance functions. Technical change leads to shifts in the profit distribution over the data period, but no welfare improvement for risk averse farmers.     

An investigation of issues relating to where energy should enter the production function

This paper examines the impact of imposing different separability assumptions in the specifications of the standard hierarchical KLEM production function in a computable general equilibrium (CGE) model. The appropriate means of introducing energy to production functions has been a source of debate for a number of years. However, while modellers often subject results to parametric sensitivy analysis regarding the values associated with elasticities of substitution between inputs, it is rarely the case that the structure of the production function is subjected to testing. However, the chosen structure reflects the modeller's view about elasticity between different inputs and will have implications for model results wherever there are changes in relative prices. We illustrate our argument by introducing a simple demand shock to a CGE model of the Scottish economy (targeted at the energy supply sector) under different assumptions regarding the structure of the KLEM production function and separability assumptions therein.     

Shadow prices of environmental outputs and production efficiency of household-level paper recycling units in Vietnam

The production efficiency and shadow prices of three environmental outputs (BOD, COD, and SS) of 63 household-level paper-recycling units, from a recycling craft village in Vietnam, are assessed A two-stage procedure, linear programming and stochastic estimation, is used to estimate output distance function. Social capital as a production factor and environmental outputs are included in the output distance function. Results indicate that production efficiencies could potentially be improved by 28%. There is a substantial variation in the shadow prices of environmental outputs among the production units of different types of paper products. Furthermore, the average shadow prices of the three environmental outputs are all positive. This indicates a potential for improving environmental quality though introducing pollution-prevention methods to paper-recycling production processes in Vietnam (e.g., recirculation of wastewater), and suggests that it may be inappropriate to restrict the shadow prices of environmental outputs to be non-positive for the analysis of some production processes.     

Multi-equation modelling of desirable and undesirable outputs satisfying the materials balance

The key feature when modelling joint production of intended outputs and unintended residuals is that the latter stem from the use of material inputs. A multi-equation model building on the factorially determined multi-output model of classical production theory satisfies the materials balance that tells us that the mass contained in inputs cannot disappear, but must turn up in the desirable outputs or end up as residuals. In this model, potentially complex technical relationships are simplified to express each of the intended outputs and the residuals as functions of the same set of inputs. Serious problems with the single-equation models most often found in the literature are demonstrated. Abatement activity in the form of end of pipe is added, and an optimal planning solution is derived using the concept of an environmental damage function for the impact of discharge of residuals into the natural environment. It is shown that the traditional environmental policy instruments, like direct regulation restricting the amount of undesirable residuals discharged to the environment, a Pigou tax on pollutants, and cap and trade, all function well. Extending the multi-equation model to allow for inefficiency, three efficiency measures are introduced: desirable output efficiency, residuals efficiency, and abatement efficiency. It is conjectured that these measures can be estimated independently using the DEA model.     

Conformism,peer pressure and adverse selection

To examine the effects of peer pressure in adverse selection problem, we define a peer pressure function that represents the psychological costs and incorporate it into the agent's utility function. Based on these assumptions, the efficient agent who has conformity preference produces less outputs than the first-best level, while the inefficient agent produces more than the second-best level of standard adverse selection output when the agents feel peer pressure among themselves. Although the production gap between the utility functions under peer pressure narrows, the gap of the ex post information rent goes wider as the information rent of efficient agents increases. Our theoretical results are consistent with some empirical/experimental findings.     

A dynamic ecological–economic modeling approach for aquaculture management

This paper presents a Modeling Approach to Resource economics decision-maKing in EcoaquaculTure (MARKET model). The MARKET model was developed as a scenario-testing tool to provide insights on the ecological and economic interactions, which is a critical issue for sustainable aquaculture management. As a case study, the model was applied to simulate shellfish production in an embayment located in the East China Sea. A set of scenarios was used to compare the model outputs with expected trends and to test its capability to simulate relevant management scenarios. The comparison of simulated scenarios indicates that the MARKET model outputs followed the expected trends regarding both standard economic theory for consumption and production, and ecological economic theory. In all the scenarios we tested the area available for aquaculture was found to impose a limitation on production before it became less profitable to expand production. As such, in this case study, the production in the long run does not meet increasing demand. Reduction of the maximum cultivation area was simulated in one of the scenarios as an example of a conservation measure. As expected there was a reduction of the net profit of the farmers compared with the standard simulation. On the other hand, this scenario combined with an increase in price growth rate simulates a compensatory measure that led to a net profit in the same range as observed in the standard simulation. Overall the MARKET model provides insights and raises questions useful for the implementation of an ecosystem approach to aquaculture. Further developments include the simulation of waste generated by cultivated species in order to better support sustainable management objectives.     

A dynamic ecological–economic modeling approach for aquaculture management

This paper presents a Modeling Approach to Resource economics decision-maKing in EcoaquaculTure (MARKET model). The MARKET model was developed as a scenario-testing tool to provide insights on the ecological and economic interactions, which is a critical issue for sustainable aquaculture management. As a case study, the model was applied to simulate shellfish production in an embayment located in the East China Sea. A set of scenarios was used to compare the model outputs with expected trends and to test its capability to simulate relevant management scenarios. The comparison of simulated scenarios indicates that the MARKET model outputs followed the expected trends regarding both standard economic theory for consumption and production, and ecological economic theory. In all the scenarios we tested the area available for aquaculture was found to impose a limitation on production before it became less profitable to expand production. As such, in this case study, the production in the long run does not meet increasing demand. Reduction of the maximum cultivation area was simulated in one of the scenarios as an example of a conservation measure. As expected there was a reduction of the net profit of the farmers compared with the standard simulation. On the other hand, this scenario combined with an increase in price growth rate simulates a compensatory measure that led to a net profit in the same range as observed in the standard simulation. Overall the MARKET model provides insights and raises questions useful for the implementation of an ecosystem approach to aquaculture. Further developments include the simulation of waste generated by cultivated species in order to better support sustainable management objectives.     

Technical efficiency of high technology medicine

Intensive care units (ICUs) are classic examples of high technology medicine. The ICU has become an essential step in the clinical management of patients passing through a phase of critical illness, However, the costs are extremely h9gh (1% of GNP in the USA), whereas it has not ben adeqyately demonstrated that routine admission to intensive care is associated with an increase in survival rate and a decrease in morbidity. Consequently, intensive care is a logical arena in which to encourage more efficient use. The paper focuses on determinates of the technical efficiency of the ICU. Technical efficiency can only be ensured when the ICU is conceived as a responsibility centre where inputs, throughputs and outputs are measured. The reaponsbility centre in characterized by management control, which is dependent on reliable information regarding incentives and constraints of ICU performance. On the basis of the medical and economic literature, conjectures are made on determinants of ICU performance. In addition, some results are presented of a feasibility study commissional by the Netherlands Ministry of Health.     

Technical and environmental efficiencies and best management practices in agriculture

An Input Distance Function (IDF) is estimated to empirically evaluate and analyse the technical and environmental efficiencies of 210 farms located in the Chaudière watershed (Quebec), where water quality problems are particularly acute because of the production of undesirable outputs that are jointly produced with agricultural products. The true IDF is approximated by a flexible translog functional form estimated using a full information maximum likelihood method. Technical and environmental efficiencies are disaggregated across farms and account for spatial variations. Our results show that there is a significant correlation between the two efficiencies. The IDF is used to compute the cumulative Malmquist productivity index and the Fisher index. The two indices are used to measure changes in technology, profitability, efficiency and productivity in response to the adoption of two selected Best Management Practices (BMPs) whose objective is to reduce water pollution. We found significant differences across BMPs regarding the direction and the magnitude of their effect.