Slack-adjusted efficiency measures and ranking of efficient units

In non-parametric methods many units are calculated as efficient. The article suggests a method for ranking efficient units, not by their efficiency, but by importance as benchmarks for the inefficient units, in contrast to earlier suggestions in the literature which rank units high if they are specialized. However, the total potentials for improvement frequently remain unrevealed by calculating radial efficiency measures of the Farrell type only. The article therefore first develops efficiency measures that explicitly extend the radial measures to include slacks. The new measures are applied to a typical multidimensional small-sample data set for Norwegian employment offices.     

Analysis on pure e-commerce congestion effect,productivity effect and profitability in China

This paper examines the relationship of e-commerce congestion effect, productivity effect and profit generation in China. The technique of Data Envelopment Analysis (DEA) is used to measure returns to scale and total factor productivity in e-commerce. The results show that e-commerce firms achieve productivity growth but suffer from input congestion. Congestion weakens profitability and leads to negative returns of inputs to outputs. This finding offers a new insight to explain the determinants of profit change. This research enriches production theory of internet companies, and helps managers strengthen their profitability by measuring the existence of congestion and eliminating input congestion resources.     

Technical efficiency of Norwegian banks: The non-parametric approach to efficiency measurement

The nonparametric frontier methodology is applied to a sample of banks, where output levels are measured either by the number of accounts and their average size, or by the total balances of the accounts. The efficiency rankings of individual banks are found to depend substantially on our choice of output metric, whereas the estimated size of potential productivity improvements in the banking sector are less affected. The results on economies of scale are also largely unchanged.The refereeing process of this paper was handled through S. Grosskopf.     

Productive Efficiency of the Swine Industry in Hawaii: Stochastic Frontier vs. Data Envelopment Analysis

Improving productive efficiency is an increasingly important determinant of the future of the swine industry in Hawaii. This paper examines the productive efficiency of a sample of swine producers in Hawaii by estimating a stochastic frontier production function and the constant returns to scale (CRS) and variable returns to scale (VRS) output-oriented DEA models. The technical efficiency estimates obtained from the two frontier techniques are compared. The scale properties are also examined under the two approaches. The industry's potential for increasing production through improved efficiency is also discussed.     

Efficiency vectors, efficiency and performance measures: new methods for ranking efficient organizational units

We present and discuss measures for analyzing productivity in deterministic frontier models. A new efficiency measure is introduced allowing for discrimination among efficient organizational units. In addition, a new performance measure for analyzing productivity of organizational units is presented. This measure fulfills various properties of efficiency measures but relaxes the indicator property. Both new approaches are based on the development of efficiency vectors which is a new vector measure for measuring efficiency. The vector components are efficiency measures related to subsets of a production possibility set. The new approaches are applied in the context of data envelopment analysis.

Measuring Cost Efficiency in European Banking: A Comparison of Frontier Techniques

This paper investigates the consistency of efficiency frontier methods on European banking samples. We measure the cost efficiency of banks from five European countries (France, Germany, Italy, Spain, Switzerland) with three approaches: stochastic frontier approach, distribution-free approach, and data envelopment analysis. We compare means, correlation coefficients, two public policy issues, and the correlation with standard measures of performance. In general, we conclude in favor of the lack of robustness between approaches, even if there are some similarities in particular between parametric approaches. We do, however, observe some correlation between all frontier approaches and standard measures of performance.     

DEA, DFA and SFA: A comparison

The nonparametric data envelopment analysis (DEA) model has become increasingly popular in the analysis of productive efficiency, and the number of empirical applications is now very large. Recent theoretical and mathematical research has also contributed to a deeper understanding of the seemingly simple but inherently complex DEA model. Less effort has, however, been directed toward comparisons between DEA and other competing efficiency analysis models. This paper undertakes a comparison of the DEA, the deterministic parametric (DFA), and the stochastic frontier (SFA) models. Efficiency comparisons across models in the above categories are done based on 15 Colombian cement plants observed during 1968–1988.     

Localized Innovation and Productivity Growth in Asia: An Intertemporal DEA Approach

Recent contributions to growth theory stress the importance of localized innovation for the performance of more backward countries. In earlier papers, analyses by means of DEA techniques confirmed this intuition. In this paper, we extend this type of analysis by relaxing the macroeconomic viewpoint adopted until now. New databases on output, labor and capital input in the agricultural and manufacturing sectors are developed for 40 countries. Using intertemporal DEA, it is found that changes in the global production frontier are localized at high levels of capital intensity. This result is stronger in agriculture than in manufacturing. Further, a decomposition of labor productivity growth in eight Asian countries for the period 1975–1992 into the effects of capital intensification, learning and innovation is made. The results suggest that there is a particular development path in which increases in capital intensity appear to be a prerequisite to benefit from international technology spillovers.JEL Classification: O14, O30, O40, O47     

On the accuracy of bootstrap confidence intervals for efficiency levels in stochastic frontier models with panel data

We study the construction of confidence intervals for efficiency levels of individual firms in stochastic frontier models with panel data. The focus is on bootstrapping and related methods. We start with a survey of various versions of the bootstrap. We also propose a simple parametric alternative in which one acts as if the␣identity of the best firm is known. Monte Carlo simulations indicate that the parametric method works better than the␣percentile bootstrap, but not as well as bootstrap methods that make bias corrections. All of these methods are valid␣only for large time-series sample size (T), and correspondingly none of the methods yields very accurate confidence intervals except when T is large enough that the identity of the best firm is clear. We also present empirical results for two well-known data sets.      

Comparing mean efficiency and productivity scores from small samples: A bootstrap methodology

This paper provides a bootstrap methodology for constructing confidence intervals for means of DEA and econometrically estimated efficiency scores, Malmquist productivity indices, and other similar measures in small samples. The procedure is nonparametric since no distributional assumptions are required. An empirical example is provided.This research was performed while Wilson was under contract with the Management Science Group, US Department of Veterans Affairs, Bedford, MA 01730.     

Regional variation in productivity: a study of the Danish economy

We develop a model of labor productivity as a combination of capital-labour ratio, vintage of capital stock, regional externalities, and total factor productivity (TFP). The skewness of TFP distribution is related to different growth theories. While negative skewness is consistent with the neo-Schumpeterian idea of catching up with leaders, zero skewness supports the neoclassical view that deviations from the frontier reflect only idiosyncratic productivity shocks. We argue that positive skewness is consistent with an economy where exogenous technology is combined with non-transferable knowledge accumulated in specific sectors and regions. This argument provides the framework for an empirical model based on stochastic frontier analysis. The model is used to analyse regional and sectoral inequalities in Denmark.

Distorted prices and producer efficiency: the case of Romania

This research aims at shedding empirical light on the relative efficiency of small-scale maize producers in Romania. Farmers in transition countries still face heavily distorted price systems resulting from imperfect market conditions and socioeconomic and institutional constraints. To capture such distortions we formulate a stochastic shadow-cost frontier model to investigate the systematic input-specific allocative inefficiency. We further adjust the underlying cost frontier by incorporating shadow price corrections and subsequently reveal evidence on farm specific technical inefficiency. Different models are estimated due to the imposition of curvature correctness and the effects on the individual efficiency estimates are shown. The empirical results show a relative high technical efficiency of the small-scale farmers but relatively poor scores on systematic input price efficiency. The usage of extension services as well as agricultural training on the farm level are found to have a positive effect on the technical efficiency level of the farms. All model specifications further agree on the negative effect on efficiency with respect to the use of insecticides. The imposition of functional concavity on the shadow cost frontier leads to relative differences in the efficiency estimates of up to 240%.      

Does pay affect productivity or react to it?: Examination of U.S. manufacturing

There may be a bi-directional relationship between wages and labor productivity. According to conventional theory, employers reward improvements in productivity by raising pay. It also has been argued that wage increases can provide an incentive to improve productivity. This study applies a technique by Geweke to identify the feedback between pay and productivity in U.S. manufacturing. For the 1949–1998 period, measures of directional feedback indicate that both “pay as reward” and “pay as incentive” behaviors have occurred, but the results vary across manufacturing subsectors.     

Using DEA to improve the management of congestion in Chinese industries (1981–1997)

Congestion is said to be present when increases in inputs result in output reductions. An “iron rice bowl” policy instituted in China shortly after the revolution led by Mao Tze Tung resulted in congestion that ultimately led to bankruptcy in the textile industry, and near bankruptcy in other industries. A major policy shift away from the “iron rice bowl policy” in 1990 led to massive layoffs and increasing social tensions. Were these massive layoffs necessary? Extensions of data envelopment analysis models effected in the present paper identified inefficiencies in the management of congestion. Using textiles and automobiles for illustration, it is shown how elimination of such managerial inefficiencies could have led to output augmentation without reducing employment. Thus, even in the presence of congestion, it proved to be possible to identify additional (managerial) inefficiencies that provided opportunities for improvement. In the heavily congested textile industry, these output augmentations could have been accompanied by reductions in the amounts of capital used (as an added bonus). In any case, we show how to identify and evaluate new types of efficiency—viz., the efficiency with which needed (or desired) inefficiencies are managed.     

Neoclassical Growth Accounting and Frontier Analysis: A Synthesis

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.     

Specification of Distance Functions Using Semi- and Nonparametric Methods with an Application to the Dynamic Performance of Eastern and Western European Air Carriers

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.     

Multiple Objective Approach as an Alternative to Radial Projection in DEA

Radial projection is a standard technique applied in data envelopment analysis (DEA) to calculate efficiency scores for input and/or output variables. In this paper, we have studied the appropriateness of radial projection for target setting. We have created a situation where the decision making units (DMUs) are free to choose their own target values on the efficient frontier and then compared the results to those of radial projection. In practice, target values are primarily used for future goal attainment; hence, not only preferences but also, and on the whole, change in time frame, affect the choice of target values. Based on that, we conducted an empirical experiment with an aim to study how the DMUs choose their most preferred target values on the efficient frontier. The subjects, who all were students of the Helsinki School of Economics, were given the freedom to explore their personalized efficient frontiers by using a multiple objective linear programming (MOLP) approach. To study various and relevant scenarios, the personalized efficient frontiers for all students were constructed in such a way that the current position of each student in relation to the frontier made him/her inefficient, efficient, or super-efficient. The results show that the use of radial projection for target setting is too restrictive.     

A comparison of multifactor productivity calculations of the U.S. agricultural sector

Since the late 1970s, there have been fourteen studies that have estimated multifactor productivity (MFP) growth rates for the U.S. agricultural sector. The estimates of average annual MFP growth rates have ranged from 1.15 to 1.94 percent per year for studies using the gross productivity approach. The purpose of this paper is to identify the reasons for these different estimates. We consider theoretical and empirical factors and do not find any single reason that satisfactory explains the variation. The alternative estimates appear to be most sensitive to the coverage of years.