Human capital contributions to explain productivity differences

This paper develops a parametric decomposition framework of labor productivity growth relaxing the assumption of labor-specific efficiency. The decomposition analysis is applied to a sample of 121 developed and developing countries during the 1970–2007 period drawn from the recently updated Penn World Tables and Barro and Lee (A new data set of educational attainment in the world 1950–2010. NBER Working Paper No. 15902, 2010) educational databases. A generalized Cobb–Douglas functional specification is used taking into account differences in technological structures across groups of countries to approximate aggregate production technology using Jorgenson and Nishimizu (Econ J 88:707–726, 1978) bilateral model of production. The measurement of labor efficiency is based on Kopp’s (Quart J Econ 96:477–503, 1981) orthogonal non-radial index of factor-specific efficiency modified in a parametric frontier framework. The empirical results indicate that the weighted average annual rate of labor productivity growth was 1.239 % over the period analyzed. Technical change was found to be the driving force of labor productivity, while improvements in human capital and factor intensities account for the 19.5 and 12.4 % of that productivity growth, respectively. Finally, labor efficiency improvements contributed by 9.8 % to measured labor productivity growth.     

Different orders of one-sided scale elasticities in multi-output production

In this paper we explore properties of different orders of one-sided scale elasticities in multi-input multi-output production using the theoretical framework developed by Hadjicostas and Soteriou (Eur J Oper Res 168:425–449, 2006), Krivonozhko et al. (J Oper Res Soc 55:1049–1058, 2004), and others. That framework includes as a special case the well-known operations research method of data envelopment analysis (DEA). A special case of the theory in this paper is the Banker-Morey (Oper Res 34:513–521, 1986a) DEA model for data that include both discretionary and non-discretionary inputs and outputs. Several inequalities among different orders of one-sided scale elasticities are presented. An example is used to illustrate many of the results and ideas of the paper. Finally, we show how the theory and results of this paper can be used to shed some light on implicit Hicks input technical change.     

Indeterminacy in discrete-time infinite-horizon models with non-linear utility and endogenous labor

We consider a discrete-time two-sector model with sector specific externalities in which the technologies are given by CES functions with asymmetric elasticities of capital–labor substitution, and the preferences of the representative agent are given by a CES additively separable utility function defined over consumption and leisure. We first show that when the labor supply is infinitely elastic, the steady state is always saddle-point stable, no matter what the elasticity of intertemporal substitution in consumption and the size of externalities are. We then prove that when the elasticity of intertemporal substitution in consumption is sufficiently large, local indeterminacy requires a low enough elasticity of the labor supply.     

Rate of return regulation and the Le Chatelier principle

This paper examines whether rate-of return regulation alters the input quantities firms use to produce their selected output level when the corresponding input prices change, in a manner similar to the Le Chatelier principle. More specifically, would the change in a rate regulated firm’s input quantity due to a change in its input price be less price elastic than the unregulated firm’s change in the input quantity due to a change in its input price. We follow Färe and Logan (1986), Nelson and Wohar (1983) in estimating a rate regulated cost function and capital input share system of equations. Using a 1992–2000 panel of 34 US major investor-owned electric utilities, empirical results indicate that the regulated own-input price elasticities of demand for labor and fuel are less price elastic than their corresponding unregulated own-input price elasticities of demand (a Le Chatelier principle type effect). Having a fuel clause (1) reduces the firm’s willingness to substitute from fuel to either non-fuel (capital, labor) input when the price of fuel rises, and (2) enhances the firm’s willingness to substitute from non-fuel inputs to fuel when the price of non-fuel inputs rises.     

An estimation of US industry-level capital–labor substitution elasticities: support for Cobb–Douglas

A key parameter that determines the distributional impacts of a policy shift in general equilibrium models is the elasticity of substitution between capital and labor. Despite the importance of this parameter in applied modeling, its identification continues to pose a challenge. Given the structure of most growth models, we posit that the true relationship between capital and labor is likely to be close to Cobb–Douglas. Using a rich new data set from the Bureau of Economic Analysis (BEA), we estimate substitution elasticities for 28 industries that cover the entire economy, and provide an indication of the long- and short-run ranges of those estimates. We fail to reject the Cobb–Douglas specification in 20 of the 28 industries. These findings lend support to the Cobb–Douglas specification as a transparent starting point in simulation analysis.     

Decomposing the change in profit of Taiwanese banks: incorporating risk

This study follows the structure of Grifell-Tatjé and Lovell (Manag Sci 45:1177–1193, 1999) and uses the non-parametric approach to decompose the change in profit of Taiwanese banks into various drivers. However, risk was never considered in the papers based on profit decomposition. Without considering risk, the empirical results will be biased while decomposing the change in profit. In fact, risk is a joint but undesirable output which cannot be freely disposed of by various regulations. The non-performing loan (NPL) is employed as a risk indicator for decomposing the change in profit in this study. This study also performs a three-way comparison among (1) the original Grifell-Tatjé and Lovell (Manag Sci 45:1177–1193, 1999) analysis (OGLA) model that ignores NPL, (2) the extended Grifell-Tatjé and Lovell (Manag Sci 45:1177–1193, 1999) analysis (EGLA) model that is based on the OGLA model and incorporates NPL, and (3) the directional distance function (DDF) model that is based on Juo et al. (Omega 40:550–561, 2012) and incorporates NPLs to see if incorporating the undesirable output matters. The decomposition of the change in profit in the above three models is then illustrated using Taiwanese banks over the period 2006–2010.     

How to optimize the allocation of research resources? An empirical study based on output and substitution elasticities of universities in Chinese provincial level

Although significant progress has been made in China's basic research in recent years, there remains a wide gap between research in China and that from developed countries. How to optimize the allocative efficiency of research resources is of great importance for increasing research output. In this paper, using the fixed effect stochastic frontier model based on the translog production function, we estimate output and substitution elasticities of research and development (R&D) inputs at universities in China's provincial level during 2009–2016. We find that the R&D technical efficiency of China's universities, after a rapid growth, has tended to become relatively stable. Improvements of internationalization degree and exogenous R&D capabilities are conducive to promoting R&D technical efficiency, whereas expenditures from government grants inhibit the promotion of R&D technical efficiency; the effects of R&D capital deepening and internet penetration are not evident. The output elasticity of R&D capital is much higher than that of R&D personnel, suggesting that R&D capital is the main driving force of research output. The substitution elasticity between R&D capital and personnel has experienced a change from substitution to complementary since 2014. To realize sustained growth of research output, we should increase R&D input with positive output elasticity or reduce R&D input with negative output elasticity, making the necessary trade-offs according to the substitution relationship between the two R&D inputs.     

Employee Mental Illness: Managing the Hidden Epidemic

While the high prevalence of mental illness in workplaces is more readily documented in the literature than it was ten or so years ago, it continues to remain largely within the medical and health sciences fields. This may account for the lack of information about mental illness in workplaces (Dewa et al. Healthcare Papers 5:12–25, 2004) by operational managers and human resource departments even though such illnesses effect on average 17 % to 20 % of employees in any 12-month period (MHCC 2012; SAMHSA 2010; ABS 2007). As symptoms of mental illness have the capacity to impact negatively on employee work performance and/or attendance, the ramifications on employee performance management systems can be significant, particularly when employees choose to deliberately conceal their illness, such that any work concerns appear to derive from issues other than illness (Dewa et al. Healthcare Papers 5:12–25, 2004; De Lorenzo 2003). When employee non-disclosure of a mental illness impacts negatively in the workplace, it presents a very challenging issue in relation to performance management for both operational managers and human resource staff. Without documented medical evidence to show that impaired work performance and/or attendance is attributable to a mental illness, the issue of performance management arises. Currently, when there is no documented medical illness, performance management policies are often brought into place to improve employee performance and/or attendance by establishing achievable employee targets. Yet, given that in any twelve-month period at least a fifth of the workforce sustains a mental illness (MHCC 2012; SAMHSA 2010; ABS 2007), and that non-disclosure is significant (Barney et al. BMC Public Health 9:1–11, 2009; Munir et al. Social Science & Medicine 60:1397–1407, 2005) such targets may be unachievable for employees with a hidden mental illness. It is for these reasons that this paper reviews the incidence of mental illness in western economies, its costs, and the reasons why it is often concealed and proposes the adoption of what are termed ‘Buffer Stage’ policies as an added tool that organisations may wish to utilise in the management of hidden medical illnesses such as mental illness.     

Role of health expenditure and ICT in a small island economy: a study of Fiji

The economy of Fiji has witnessed a pervasive role of information and communications technology (ICT) on one hand and an increase in lifestyle diseases on the other. The government however has put in policies to exploit the gains from ICT and increased budget allocation to combat some of the burgeoning health problems in their effort to modernize the economy. In this paper, we explore the short-run and long run effects of health expenditure and ICT on per worker output within the augmented Solow framework (Q J Econ 70:65–94, 1956) and the autoregressive distributed lag bounds procedure (Pesaran et al. in J Appl Econ 16:289–326, 2001) over the period 1979–2010. The results show that health expenditure has a positive and significant effect in the short-run only (0.11 %). ICT has positive and significant effect both in the short-run (0.90 %) and the long-run (0.62 %). Further, the Granger-causality tests reveals a strong bi-directional causality between health expenditure and per worker output, a unidirectional strong causation from capital per worker to ICT development, and a weak causation from ICT to per worker output.     

Directional output distance functions: endogenous directions based on exogenous normalization constraints

In response to a question raised by Knox Lovell, we develop a method for estimating directional output distance functions with endogenously determined direction vectors based on exogenous normalization constraints. This is reminiscent of the Russell measure proposed by Färe and Lovell (J Econ Theory 19:150–162, 1978). Moreover it is related to the slacks-based directional distance function introduced by Färe and Grosskopf (Eur J Oper Res 200:320–322, 2010a, Eur J Oper Res 206:702, 2010b). Here we show how to use the slacks-based function to estimate the optimal directions.     

Accounting for heterogeneous technologies in the banking industry: a time-varying stochastic frontier model with threshold effects

This paper investigates the existence of heterogeneous technologies in the US commercial banking industry through the nondynamic panel threshold effects estimation technique proposed by Hansen (Econometrica 64:413–430, 1999, Econometrica 68:575–603, 2000a). We employ the total assets as a threshold variable, which is typically considered as a proxy for bank’s size in the banking literature. We modify the threshold effects model to allow for time-varying effects, wherein these are modeled by a time polynomial of degree two as in Cornwell et al. (J Econom 46:185–200, 1990) model. Threshold effects estimation allows us to sort banks into discrete groups based on their size in a structural and consistent manner. We determine seven such distinct technology-groups within which banks are allowed to share the same technology parameters. We provide estimates of individual and group efficiency scores, as well as of those of returns to scale and measures of technological change for each group. The presence of the threshold(s) is tested via bootstrap procedure outlined in Hansen (Econometrica 64:413–430, 1999) and the relationship between bank size and efficiency ratios is investigated.     

Deunionization and job polarization – a macroeconomic model analysis for a small open economy

Declining unionization rates and job polarization are two important labor market developments of recent decades. A large body of literature has analyzed these phenomena separately, but little has been done to see whether there is a link between them. We employ a macroeconomic model for a small open economy with a large input–output core to analyze how deunionization may cause job polarization. Our analysis shows that medium-skilled workers are negatively affected by deunionization, mainly as a result of the heterogeneity of the elasticities of substitution between different types of labor. While the elasticities of substitution between high- and medium-skilled labor are relatively low, the elasticities of substitution between medium- and low-skilled are relatively high. As a result, when deunionization leads to increased wage dispersion, we find that demand for low-skilled increases at the expense of medium-skilled labor, thus yielding a more polarized labor market.     

Estimation and inference in parametric deterministic frontier models

In this paper we consider parametric deterministic frontier models. For example, the production frontier may be linear in the inputs, and the error is purely one-sided, with a known distribution such as exponential or half-normal. The literature contains many negative results for this model. Schmidt (Rev Econ Stat 58:238–239, 1976) showed that the Aigner and Chu (Am Econ Rev 58:826–839, 1968) linear programming estimator was the exponential MLE, but that this was a non-regular problem in which the statistical properties of the MLE were uncertain. Richmond (Int Econ Rev 15:515–521, 1974) and Greene (J Econom 13:27–56, 1980) showed how the model could be estimated by two different versions of corrected OLS, but this did not lead to methods of inference for the inefficiencies. Greene (J Econom 13:27–56, 1980) considered conditions on the distribution of inefficiency that make this a regular estimation problem, but many distributions that would be assumed do not satisfy these conditions. In this paper we show that exact (finite sample) inference is possible when the frontier and the distribution of the one-sided error are known up to the values of some parameters. We give a number of analytical results for the case of intercept only with exponential errors. In other cases that include regressors or error distributions other than exponential, exact inference is still possible but simulation is needed to calculate the critical values. We also discuss the case that the distribution of the error is unknown. In this case asymptotically valid inference is possible using subsampling methods.     

Endogenous lifetime,accidental bequests and economic growth

This paper introduces the concept of unintentional bequests in a closed economy à la Chakraborty (J Econ Theory 116:119–137, 2004) with overlapping generations. We show that scarce public investments in health can lead to poverty traps depending on the relative size of the output elasticity of capital. More importantly, the existence of unintentional bequests, rather than a market for annuities, means that health tax rates play a prominent role in determining the stability of the long-term equilibrium in rich economies. In fact, Neimark–Sacker bifurcations and endogenous fluctuations occur depending on the size of the public health system.     

Robustness for path-dependent volatility models

In this paper, we consider a generalisation of the Hobson–Rogers model proposed by Foschi and Pascucci (Decis Eocon Finance 31(1):1–20, 2008) for financial markets where the evolution of the prices of the assets depends not only on the current value but also on past values. Using differentiability of stochastic processes with respect to the initial condition, we analyse the robustness of such a model with respect to the so-called offset function, which generally depends on the entire past of the risky asset and is thus not fully observable. In doing this, we extend previous results of Blaka Hallulli and Vargiolu (2007) to contingent claims, which are globally Lipschitz with respect to the price of the underlying asset, and we improve the dependence of the necessary observation window on the maturity of the contingent claim, which now becomes of linear type, while in Blaka Hallulli and Vargiolu (2007), it was quadratic. Finally, in this framework, we give a characterisation of the stationarity assumption used in Blaka Hallulli and Vargiolu (2007), and prove that this model is stationary if and only if it is reduced to the original Hobson–Rogers model. We conclude by calibrating the model to the prices of two indexes using two different volatility shapes.     

Exploring the nexus between tourism,remittances and growth in Kenya

Recently there has been a surge in remittances inflow to Kenya while tourism receipts appears to be declining, albeit gradually. In light of these developments, the paper explores the plausible effects of tourism and remittances on per worker output. We use the annual data over 1978–2010 periods and the ARDL bounds approach within the augmented (Solow in Q J Econ 70:65–94, 1956) framework. The regression results show that tourism has a marginal net negative effect in the short-run however positive effect in the long-run. Remittances, on the other hand, have a net positive effect in short-run and negative effect in the long-run. The key results from the Toda–Yamamoto Granger non-causality (Toda and Yamamoto in J Econom 66:225–250, 1995) results show a unidirectional causation from remittances to output per worker; and from output per worker to tourism. A unidirectional ‘combined effect’ of all variables causing output and remittances, respectively are evident as well. Conclusively, tourism is one of the leading drivers of Kenyan economy. To boost gains from tourism, the sector needs to align policies to the Kenya 2030 strategic framework with significant focus on expanding markets, boosting investment, and growth. Remittances market need to be further developed strategically with the view to improving Kenyan migrant led growth initiatives with plausible links to tourism development.     

Symmetry and Bates’ rule in Ornstein–Uhlenbeck stochastic volatility models

We find necessary and sufficient conditions for the market symmetry property, introduced by Fajardo and Mordecki (Quant Finance 6(3):219–227, 2006), to hold in the Ornstein–Uhlenbeck stochastic volatility model, henceforth OU–SV. In particular, we address the non-Gaussian OU–SV model proposed by Barndorff-Nielsen and Shephard (J R Stat Soc B 63(Part 2):167–241, 2001). Also, we prove the Bates’ rule for these models.     

Investing equally in risk

Classical optimal strategies are notorious for producing remarkably volatile portfolio weights over time when applied with parameters estimated from data. This is predominantly explained by the difficulty to estimate expected returns accurately. In Lindberg (Bernoulli 15:464–474, 2009), a new parameterization of the drift rates was proposed with the aim to circumventing this difficulty, and a continuous time mean–variance optimal portfolio problem was solved. This approach was further developed in Alp and Korn (Decis Econ Finance 34:21–40, 2011a) to a jump-diffusion setting. In the present paper, we solve a different portfolio problem under the market parameterization in Lindberg (Bernoulli 15:464–474, 2009). Here, the admissible investment strategies are given as the amounts of money to be held in each stock and are allowed to be adapted stochastic processes. In the references above, the admissible strategies are the deterministic and bounded fractions of the total wealth. The optimal strategy we derive is not the same as in Lindberg (Bernoulli 15:464–474, 2009), but it can still be viewed as investing equally in each of the n Brownian motions in the model. As a consequence of the problem assumptions, the optimal final wealth can become non-negative. The present portfolio problem is solved also in Alp and Korn (Submitted, 2011b), using the L ²-projection approach of Schweizer (Ann Probab 22:1536–1575, 1995). However, our method of proof is direct and much easier accessible.     

A new approach to estimating the metafrontier production function based on a stochastic frontier framework

This paper proposes a new two-step stochastic frontier approach to estimate technical efficiency (TE) scores for firms in different groups adopting distinct technologies. Analogous to Battese et al. (J Prod Anal 21:91–103, 2004), the metafrontier production function allows for calculating comparable TE measures, which can be decomposed into group specific TE measures and technology gap ratios. The proposed approach differs from Battese et al. (J Prod Anal 21:91–103, 2004) and O’Donnell et al. (Empir Econ 34:231–255, 2008) mainly in the second step, where a stochastic frontier analysis model is formulated and applied to obtain the estimates of the metafrontier, instead of relying on programming techniques. The so-derived estimators have the desirable statistical properties and enable the statistical inferences to be drawn. While the within-group variation in firms’ technical efficiencies is frequently assumed to be associated with firm-specific exogenous variables, the between-group variation in technology gaps can be specified as a function of some exogenous variables to take account of group-specific environmental differences. Two empirical applications are illustrated and the results appear to support the use of our model.     

Modeling and simulation of the quality’s entropy

The aim of the present study is to define quality entropy as well as to illustrate some of its properties. The simulation of the mathematical model for quality entropy shall be performed by means of specialized software for mathematical problem simulation, such as Microsoft Excel that we have employed for this particular study. Our aim is to prove that quality entropy may be expanded to the notions of Markov source of quality and Bernoulli source of quality, by analogy with the Markov and Bernoulli sources employed in information theory. Likewise, the present study delineates some aspects regarding tolerance to quality entropy. The subject of entropy and its application of the management of quality has been approached by other authors as well (Dinu and Vod?, Revista Calitatea-acces la succes, anul 8(4): 60–61, 2007; Dinu, Revista Calitatea-acces la succes, anul 8(5): 62–63, 2007; Georgescu-Roegen, Legea Entropiei ?i Procesul Economic, 1979; Stamatiu, Proceedings of the 7th International Conference on Quality, Reability and Maintainabilty, 2000; Stamatiu, Proceeding of the 18th International Conference on Quality, Reliability and Maintainability, 2002). Through our transdisciplinary approach, we would like to contribute to the development of this subject.