Estimations of cost metafrontier Malmquist productivity index: using international tourism hotels in Taiwan as an example

This study introduces a novel way of calculating and analyzing cost metafrontier Malmquist productivity index model (CMMPI) under variable return to scale measurement. The CMMPI which reflects operational performance more comprehensively and determine ways of enhancing future competiveness, not only estimates efficiency change but also decomposes gap ratio thus enabling the decision making unit to differentiate group frontier from metafrontier within the broad definition of “catch-up.” Empirical results show that the CMMPI of international tourism hotels in Taiwan declined by 0.9% from 2002 to 2010 mainly because of the deterioration of meta-technical efficiency change, meta-allocative efficiency change, meta-cost scale efficiency change, and the meta-input price effect change. Empirical results suggest that the completeness of cost approach is useful for exploring the characteristics of the Taiwanese international tourism hotel industry. Moreover, the international chain hotel is significantly superior to independent hotels in meta-cost efficiency, meta-technical efficiency, and meta-allocative efficiency, and several managerial insights and implications are discussed.