Efficient frontier estimation: a maximum entropy approach

An alternative efficiency estimation approach is developed utilizing generalized maximum entropy (GME). GME combines the strengths of both SFA and DEA, allowing for the estimation of a frontier that is stochastic, without making an ad hoc assumption about the distribution of the efficiency component. GME results approach SFA results as the one-sided inefficiency bounds used by GME shrink. Results similar to DEA are achieved as the bounds increase. The GME results are distributed like DEA, but yield virtually the same rankings as SFA. The results suggest that GME may provide a link between various estimators of efficiency.

Application of a double bootstrap to investigation of determinants of technical efficiency of farms in Central Europe

The paper provides one of the first applications of the double bootstrap procedure (Simar and Wilson 2007) in a two-stage estimation of the effect of environmental variables on non-parametric estimates of technical efficiency. This procedure enables consistent inference within models explaining efficiency scores, while simultaneously producing standard errors and confidence intervals for these efficiency scores. The application is to 88 livestock and 256 crop farms in the Czech Republic, split into individual and corporate.

Financial liberalization and banking efficiency: evidence from Turkey

This paper examines the banking efficiency in a pre- and post-liberalization environment by drawing on the Turkish experience by using DEA. The paper also investigates the scale effect on efficiency. Our findings suggest that liberalization programs were followed by an observable decline in efficiency. Another finding of the study is that the Turkish banking system had a serious scale problem during the study period. The second part of our analysis relied on econometric methods and found that one major reason for such system-wide efficiency decline has been the growing macroeconomic instability of the Turkish economy in general and financial sector in particular.

Investment and dynamic DEA

A dynamic version of data envelopment analysis (DEA) is developed in the present paper. Our model introduces investment in traditional DEA and imposes intertemporal cost minimization. Adding an intertemporal adjustment constraint into the cost minimization problem, we derive the relation between the DEA variables of the variable cost function and those of the primary production frontiers’ coefficients. The augmented DEA model can be solved using standard linear programming. This dynamic framework enables computing the production frontiers, measuring the productive efficiencies and evaluating the potential economies all in the presence of adjustment costs.

Far out or alone in the crowd: a taxonomy of peers in DEA

A method is presented for classifying strongly efficient units in DEA as interior or exterior, and as self-evaluators or active peers. The exterior strongly efficient units are found by running the enveloping procedure “from below”. There is no firm production-function evidence of the efficiency of exterior self-evaluators. Interior self-evaluators are more likely to have active peers as neighbours in more directions and may therefore represent technology. When performing a second stage regression analysis of efficiency scores, exterior self-evaluators should be removed. The proportion of exterior active peers also provides information on whether the variable specification is supported by the data.

Estimating DEA technical and allocative inefficiency using aggregate cost or revenue data

In this paper, we address the question of Data Envelopment Analysis (DEA) evaluation of efficiency when aggregate cost or revenue data must be used. We show that the DEA technical inefficiency measure using total revenues as the single output variable or total costs as the single input variable equals the aggregate technical and allocative inefficiency. We employ this result to estimate allocative inefficiency and construct statistical tests of the null hypothesis of no allocative inefficiency analogous to those of the null hypothesis of no scale inefficiency. We illustrate our method using revenue and personnel data for the top U.S. public accounting firms over 1995–1998. Our empirical results indicate the existence of statistically significant allocative inefficiency in the public accounting industry.

Productivity efficiencies in Ukrainian polyclinics: lessons for health system transitions from differential responses to market changes

Ukraine’s recent elections revealed deep divisions between eastern regions, which favored central economic planning, and western regions, which preferred more free market reforms. This study compares polyclinics in Ukraine to see if the inflexibility of Soviet-style planned economies results in lower economic efficiency in eastern regions. Using data from two geopolitical regions, Data Envelopment Analysis (DEA) scores for polyclinic efficiencies are modeled as a function of demographic and economic determinants. Surprisingly, results indicate that polyclinics in western Ukraine are less efficient. Possible explanations, including case mix intensity, responsiveness to local preferences, physician entrepreneurial behavior and a legacy of inequitable funding, are discussed.

Assessing multi-dimensional performance: environmental and economic outcomes

This study examines economic performance, environmental performance, and regulatory activity for plants in three industries: pulp and paper, oil, and steel. Stochastic frontier production function models show significant deviations from production efficiency. Older plants are less efficient in production, but perform no worse on emissions. Plants spending more on pollution abatement tend to do worse on both production efficiency and emissions. Stricter local regulatory pressure is associated with somewhat lower emissions, but has mixed effects on production efficiency. Positive correlations between SUR residuals for emissions and production efficiency suggest unmeasured plant-level characteristics that drive both economic and environmental performance.

Efficiency analysis of East European electricity distribution in transition: legacy of the past?

This paper provides a cross-country efficiency analysis of electricity distribution companies in the East European transition countries of Poland, the Czech Republic, Slovakia and Hungary. We use common nonparametric efficiency measurement such as Data Envelopment Analysis (DEA) and Free Disposal Hull (FDH) under different assumptions and apply recent developments of statistical inference in nonparametric frontier models to test our hypotheses. We discuss the empirical problems of cross-country benchmarking approaches, in particular the comparability of different structures of electricity distribution companies. Our results suggest that Poland’s distribution companies are still inefficiently small; the Czech Republic features the highest efficiency; and Slovakia and Hungary occupy the middle range. We also note that privatization has had a positive effect on technical efficiency in the four countries. We use the phrase “legacy of the past” to describe the four countries in comparison to the efficiency of electricity distribution companies we studied in Germany.

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.

A response to the critiques of DEA by Dmitruk and Koshevoy, and Bol

We here critique the articles by Dmitruk & Koshevoy (1991, J Econ Theory 55:121–144) and by Bol (1986, J Econ Theory 38:380–385) by showing how to solve the examples they erected to show the non-existence of functions for evaluating performance efficiencies in DEA. We also show that functions satisfying these criteria—and other important criteria as well—were already available prior to the publications of D&K and by Bol and have since been greatly extended to increase the power and scope of DEA.

The cost of Corporate Social Responsibility: the case of the Community Reinvestment Act

A Data Envelopment Analysis (DEA) cost minimization model is employed to estimate the cost to thrift institutions of achieving a rating of ‘outstanding’ under the anti-redlining Community Reinvestment Act, which is viewed as an act of voluntary Corporate Social Responsibility (CSR). There is no difference in overall cost efficiency between ‘outstanding’ and minimally compliant ‘satisfactory’ thrifts. However, the sources of cost inefficiency do differ, and an ‘outstanding’ rating involves annual extra cost of $6.547 million or, 1.2% of total costs. This added cost is the shadow price of CSR since it is not an explicit output or input in the DEA cost model. Before and after-tax rates of return are the same for the ‘outstanding’ and ‘satisfactory’ thrifts, which implies a recoupment of the extra cost. The findings are consistent with CSR as a management choice based on balancing marginal cost and marginal revenue. An incidental finding is that larger thrifts are less efficient.

Production technologies based on combined proportionality assumptions

The assumption of full proportionality is incorporated in the constant returns-to-scale (CRS) technology and allows for proportional scaling of inputs and outputs of production units. The assumption of selective proportionality was recently incorporated in the hybrid returns-to-scale (HRS) technology in which only a subset of outputs is proportional to a subset of inputs. In this paper we develop a production technology that exhibits both the full and selective proportionality at the same time. Real examples of such technology are pointed out. Subject to certain conditions, the DEA models based on this technology provide better discrimination than the CRS and HRS models.

The productivity performance of Irish dairy farms 1984–2000: a multiple output distance function approach

This study measures productivity growth on Irish dairy farms over the period 1984–2000. A total factor productivity index is constructed for the dairy system and is decomposed into technical change, efficiency change, and changes in scale efficiency. This is achieved by estimating a stochastic output distance function model of the production technology in use on Irish dairy farms. Overall, productivity on Irish dairy farms grew by 1.2% per annum over the sample period.

Productivity and efficiency of state-owned enterprises in China

The purpose of this paper is to evaluate the variations in SOE efficiency and productivity from the perspectives of macroeconomic fluctuations and systematic reform in China during 1986–2003. We use Data Envelopment Analysis to measure SOE efficiency. Subsequently, we use the Malmquist Index of Productivity change to measure productivity growth. The empirical results show that SOE efficiency and productivity exhibited obvious improvements during periods of strong systematic reform and a prosperous economy. The systematic reform after 1998 had a clear-cut impact on SOE performance.

Exact decomposition of the Fisher ideal total factor productivity index

Decompositions of total factor productivity (TFP) shed light on the driving factors behind productivity change. We develop the first exact decomposition of the Fisher ideal TFP index which contains no debatable mixed-period components or residuals. We systematically isolate five effects of (1) technical change, (2) technical efficiency, (3) scale efficiency, (4) allocative efficiency, and (5) price effect. The three efficiency components (2–4) represent the efficiency of achieving a given target point. Components (1) and (5) capture the changes of the target point. While the technical change component is well-established, changes in the relative input–output prices can have real effects on the scale and scope of the target. Such changes are captured by the new price effect component (5). The new decomposition is compared with existing decompositions both in theory and by means of an empirical application to a panel data of 459 Finnish farms in years 1992–2000.

Efficiency evaluation in municipal services: an application to the street lighting service in Spain

Efficiency evaluation is very important in the municipal realm because of its impact on the people’s standard of living. However, in most cases the value of public output is hardly significant, and therefore measurement is necessarily limited to estimating technical efficiency, which is calculated using physical inputs and outputs. A major part of municipal services can be provided through different types of public management. This plurality of options lends greater relevance to the evaluation. This paper analyzes efficiency in the public street lighting service in Spanish towns, by means of DEA methodology, pursuing two objectives: to estimate the technical efficiency achieved and to discover whether differences in efficiency can be explained by the type of management, that has been chosen, whether public or private. The results of the analysis allow us to confirm that there is a significant relationship between the variables defined as inputs into the process and efficiency. However, the relationship is not very significant for the variables considered as outputs, in some cases. It was also detected that the factors defining the characteristics of the environment and the type of management, whether public or private, do not have a statistically significant impact on efficiency levels.

Potential targets: An analysis of stock price reactions to acquisition program announcements

Stockholders of potential targets experience a statistically significant wealth gain of 0.59% over the 3-day window surrounding the acquisition program announcement. Potential targets are defined as those firms that subsequently receive bids. Using alternative definitions, such as a portfolio of all firms in the industry of the target or firms within the target industry with a higher probability of receiving a bid as predicted by a maximum likelihood logit model, yield qualitatively similar results. These findings suggest that events, such as program announcements, release significant merger related information well before a target is formally approached with implications for wealth effects at subsequent bids. As with normal targets, the likelihood of receiving a bid for targets that are part of a broad-based program of acquisitions increases in the level of agency problems, managerial inefficiency and in the proportion of tangible assets in the target.

Parametric estimation of inefficiency in cargo handling in Spanish ports

Port workers services have been usually heavily regulated and reserved exclusively for a special kind of workers, dockworkers, which seems to have been the cause of serious inefficiencies worldwide. During the eighties, law reforms have been introduced to solve this problem. In this paper we analyze and decompose efficiency in cargo handling operations in 19 Spanish ports from 1990 to 1998. The method chosen is that of the parametric estimation of both allocative and technical inefficiency using panel data and a quadratic cost function. Results show that although inefficiency has decreased overall, there has been over utilization of labor regarding capital, and technical inefficiency. This supports the need of further consideration of other aspects including competition.

Efficiency measurements and the gains from trade under transaction costs

The paper investigates the measurement of economic efficiency under transaction costs in a second best world. New measurements of technical efficiency, allocative efficiency, and price efficiency are proposed. They have three desirable properties. First, they measure efficiency loss in monetary units. Second, they are additive and can be conveniently summed into an overall efficiency measure. Third, they allow for transaction costs and their effects on prices and trade incentives. The paper investigates the welfare effects of technology choice, government pricing and trade policy, and market imperfections on efficiency. It provides new insights on the measurement of benefits from trade liberalization when trade affects not only price efficiency, but also technical and allocative efficiency.