Shadow directional distance functions with bads: GMM estimation of optimal directions and efficiencies

Because of its greater flexibility, the directional distance function (DDF) has been employed with increasing frequency to estimate multiple-input and multiple-output production, where inputs and outputs can be good or bad. However, typically researchers make three restrictive assumptions. First, they assume a direction of movement of firm production toward the frontier. Second, they assume that actual quantities of inputs and outputs are allocatively or price efficient. Third, they assume exogeneity of all inputs and all outputs, except for the normalized one. The first contribution of this paper is to include parameters to estimate optimal directions which correspond to the firm’s profit-maximizing (PM) position. The second contribution is to generalize the DDF to a shadow-quantity DDF. This entails adding distortion parameters to each input and output quantity of the DDF, creating shadow quantities. To estimate the shadow quantities and the structural parameters, we form the shadow DDF system, which includes the shadow DDF and all the first-order price equations from the shadow-PM problem. These include prices for bad inputs and bad outputs, where we approximate their missing prices for use in their first-order price equations. The third contribution is that we estimate the shadow DDF system using a Generalized Method of Moments approach, where all variables are potentially endogenous. This approach is simpler than the Bayesian one employed in Atkinson et al. (Estimating efficient production with bad inputs and outputs using latent prices and optimal directions. Working paper, University of Georgia, Athens, 2016), which estimated shadow prices and optimal directions. Using the same data set, both sets of results are qualitatively very similar, although they differ somewhat quantitatively.     

Using distance functions to understand interest taxation

One of Terence Gorman's insights was that if one wants to derive rules about optimal commodity tax rates (or prices) one should treat quantities consumed as the instruments. This paper builds on Angus Deaton's development of this idea using distance functions. I identify necessary and sufficient conditions for uniform commodity taxation in a static model and the efficiency of various tax structures in a life‐cycle model. One implication is that the optimal interest tax rate may be higher when ordinary or compensated labour supply elasticities are lower.     

Slack-based directional distance function in the presence of bad outputs: theory and application to Vietnamese banking

In this paper we extend the slack-based directional distance function introduced by Färe and Grosskopf (Eur J Oper Res 200(1):320–322, 2010) to measure efficiency in the presence of bad outputs and illustrate it through an application on data of Vietnamese commercial banks. We also compare results from the slack-based directional distance function relative to the directional distance function, the enhanced hyperbolic efficiency measure (Färe et al. in Rev Econ Stat 71(1):90–98, 1989) and the Farrell-type technical efficiency and confirm that it has greater discriminative power.     

Empirical comparison of the shape of welfare functions

This study compares the fit of the lognormal welfare function proposed by Van Praag (1968) with the fit of 12 other functions. The comparison uses a sample of about 14;000 respondents. The lognormal function outperforms 11 alternatives in terms of the residual variance criterion, while the logarithm performs slightly better.     

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.     

Trade distance functions and the derivation of inverse demand for imports

This article introduces a new representation of trade preferences termed as the trade distance function, which measures the maximum amount by which import quantities must be deflated or inflated to reach the indifference surface. The properties of this function are discussed and employed to derive systems of inverse demand for imported goods. We illustrate its usefulness by proposing two new parametric forms of trade distance functions. While the trade distance function directly yields Hicksian inverse demand functions of imports, they usually lack closed-form representations in terms of observable variables. This problem, however, need not hinder estimation and could be solved by using the numerical inversion estimation method. Results generally indicate that the suggested modelling and estimation methods are operationally, implying that the trade distance function approach is a promising tool of the empirical analysis of import demands subjected to tight theoretical conditions.     

Unified efficiency evaluation of regional industries in China: a nonradial directional distance function approach

This article extends a nonradial directional distance function (DDF) to allow decision-making units to adjust inputs in two directions. Based on this nonradial DDF, we evaluate the regional industrial unified efficiency (operational efficiency and environmental efficiency) in China between 2005 and 2014. We find that East China has the highest industrial unified efficiency score, followed by the West and Central China. To avoid methodological biases, three other models are also applied to assess the unified efficiency. The results indicate that a nonradial DDF under natural and managerial disposability (our model) has a greater discriminating power than a nonradial DDF under either of the disposabilities and the radial DDF.     

Measuring technical efficiency and shadow price of water pollutants for the leather industry in India: a directional distance function approach

Journal of Regulatory Economics - This paper measures the cost of reducing pollution from the Kanpur leather industry which is a prime source of pollution in India’s largest river basin of...     

Performance of private higher education institutions in Vietnam: evidence using DEA-based bootstrap directional distance approach with quasi-fixed inputs

Vietnam’s higher education has witnessed substantial improvements since the implementation of the Doi Moi (renovation) policy. One of the significant developments is the promotion of establishment and enhancement of the role of private institutions in national education systems. However, the quest to improve the overall performance of the private higher education institutions remains a big challenge for many stakeholders. We assess the performance of Vietnamese private universities using a data envelopment analysis–based bootstrap directional distance approach with quasi-fixed inputs. The results show that there was a large variation in the efficiency levels of private universities within and between academic years and between metropolitan and other private universities. Our empirical findings provide more insights for educational leaders and policy makers on the performance of private higher education institutions and the implications of privatization of the national higher education system.     

Empirical implications of mathematical functions used to analyze market penetration of new products—Cigarettes case study

Three types of S-shaped growth curves—the logistic, the lognormal, and the Gompertz—are widespread in the literature on analysis of market penetration of new products/processes. This article discusses the mathematical properties of these function in the light of their empirical implications, such as location of the point of maximum growth rate, the symmetry/asymmetry of the growth rates around that inflection point, and the ease of estimation (linear and nonlinear regressions). The empirical economic expectations cannot specify these phenomena a priori so that a less restrictive function should be preferred. Such a function is the Gompertz function. It is, therefore, applied to the study of market penetration of filtered and menthol cigarettes and shown that the empirical verification vindicates the theoretical postulates of that function. The empirical estimates are also closer to actual estimates of growth rates of adoption.     

The direction of developing country trade: Empirical evidence of differences between South-South and South-North trade

Declining market opportunities in Northern markets led to views that greater South-South trading might provide an alternative growth stimulus. This paper analyses the characteristics of South-South trade in manufactures and recent changes in the level of such trade to help clarify the potential of greater self-reliance within the South. South-South trade is found to be more intensive in the use of both physical and human capital, hence less rational from the static comparative advantage viewpoint than South-North trade. There is indirect but strong evidence that exporting countries with greatest orientation towards the South are those with greater distortions, less rapid movements up the ladder of comparative advantage, and weaker export performance. Finally, it is observed that the recent boom in South-South trade is largely explained by simple market size effects: very rapid growth of rich oil-exporters and the faster GNP growth of developing compared to developed countries. The paper concludes that while South-South trade of about the present magnitude-one of greater developing country exports - is certainly rational, there is little evidence to support views that greater South-South trade should be especially promoted. Arguments of dynamic comparative advantage may favor South-South trade, but so far these have been more speculative and not yet well researched empirically.     

Using the Delphi method to assess community health needs

Comprehensive health planning must ultimately be based upon information about the people to be served. Their needs as potential patients or clients of the various service systems being planned must be identified and evaluated. Regional cooperation on meeting these health care needs is premised on some agreement amongst the population as to the existing problems and their relative priorities. In order to investigate how such a health needs assessment might be undertaken a study was conducted using a panel of citizens selected from a 10-country central Texas region. The results demonstrate the fesibility of employing the Delphi method for achieving consensus on some health care issues; the information obtained can become valuable input to the overall health planning process.     

Differentiability of the cost functions is equivalent to strict quasiconcavity of the production functions

The assumption that cost functions are differentiable with respect to input prices is equivalent to the assumption that production functions are strictly quasiconcave.     

Using the directional shadow elasticity of substitution to measure the concavity of the cost function

The note develops a test of the concavity of a cost function using the directional shadow elasticity of substitution. The DSES generalizes the shadow elasticity of substitution to arbitrary price changes in the plane tangent to the factor price frontier. The test computes the minimum value of the DSES, which should be non-negative for concavity, and the direction in the price space along which it occurs.     

Using the concept of yield to assess the sustainability of different tourist types

Sustainability assessments have become important tools for decision makers. This research assesses the sustainability of different types of tourists in New Zealand by using the concept of yield and by developing yield indicators in the areas of financial, public sector and sustainable yield. The concept and indicators have been developed in cooperation with the New Zealand tourism sector and therefore provide a sector-driven approach to implement a sustainability assessment. The analysis shows that there are numerous ‘trade-offs’ between indicators when attempting to define the ‘ideal visitor type’. Coach tourists, for example, are the largest spenders and generate the greatest Value Added in tourism on a per-day basis, but they contribute less to the financial sustainability of tourism when the costs of capital are accounted for. Coach tourists are highly concentrated in a few key destinations and at the same time produce substantial amounts of CO₂ emissions due to their air travel component. In contrast, backpacker and camping tourists provide greater financial yield and are more dispersed, but they are also the greatest user of publicly provided tourist attractions and therefore come at a higher cost to government than other tourist types. Camping tourists are also contributing considerably to CO₂ emissions. The yield analysis proposed in this paper could be a valuable tool for complex policy decision making and identifying strategies that lead to high-yield tourism.     

Using the multi-level perspective on socio-technical transitions to assess innovation policy

In recent years a growing literature on socio-technical transitions towards sustainability has emerged. Scholars have explored ways through which configurations of technologies, infrastructures, social practices, institutions and markets can change to fulfil their functions in a more sustainable way. A multi-level perspective (MLP) has been developed to describe and analyse these complex, long-term processes. It has also been used to help design policy for example in the Netherlands. In this paper the MLP is used in a novel way: as a heuristic to ex ante assess policies to stimulate socio-technical transitions. Instead of using it for policy development, the MLP is used here for an assessment of policy. The analysis focuses on a particular policy initiative intended to stimulate the transition to a low carbon economy in the UK: the Carbon Trust. This paper makes two contributions to the socio-technical transitions literature: Conceptually, the paper demonstrates the usefulness of the socio-technical multi-level perspective to analyse policies and assess their likely impact ex ante against the background of theorising about the patterns of large scale, socio-technical change. Empirically, the paper finds that the activities of the Carbon Trust consist of a variety of well targeted ways to stimulate the development of socio-technical niches as well as to change regime practices directly. Nevertheless, the paper argues that this model also faces difficulties in promoting a transition towards a low carbon economy.     

Linearity of the return to education and self selection

This paper investigates the earnings-education profile in Spain. First no functional form is imposed on this relation but instead dummy variables are used for each year of education. Second, different alternatives are analysed until the best parametric form is found. Moreover problems related to the self selection of individuals and to the segmentation of the labour market based on the educational level are considered. The main results indicate that the effect of education on earnings is not significant until individuals finish secondary education and from there onwards the relationship can be considered linear.