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Article
Publication date: 1 September 2005

George Baltas

The purpose of this paper is to consider a new application of stochastic frontier analysis, in which the method is applied to demand data for a food product category, in…

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Abstract

Purpose

The purpose of this paper is to consider a new application of stochastic frontier analysis, in which the method is applied to demand data for a food product category, in an attempt to benchmark category consumption and segment food consumers.

Design/methodology/approach

In a unified, two‐stage approach, a stochastic frontier model is first estimated and subsequently deviations from the demand frontier are regressed on customer characteristics. The method is illustrated in scanner panel data.

Findings

A frontier demand function estimated in scanner data of a frequently‐bought food category has significant and consistent parameters. Specific descriptor variables can explain excessive category demand and profile customers with considerable sales potential.

Research limitations/implications

More work is needed to generalise the usefulness of the proposed model in different food categories. Future research may employ alternative functional specifications and explanatory variables.

Practical implications

The empirical identification of salient characteristics improves consumer understanding and can assist in the design of data‐driven marketing action. Applied researchers can use marketing and demographic variables that are found in standard consumer panels to estimate frontier models.

Originality/value

The paper introduces stochastic frontier analysis as a means to determine consumer differences in food demand. This is an important area for retailers, producers and researchers.

Details

British Food Journal, vol. 107 no. 9
Type: Research Article
ISSN: 0007-070X

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Book part
Publication date: 31 May 2016

Bo Zou, Irene Kwan, Mark Hansen, Dan Rutherford and Nabin Kafle

Air carriers and aircraft manufacturers are investing in technologies and strategies to reduce fuel consumption and associated emissions. This chapter reviews related…

Abstract

Air carriers and aircraft manufacturers are investing in technologies and strategies to reduce fuel consumption and associated emissions. This chapter reviews related issues to assess airline fuel efficiency and offers various empirical evidences from our recent work that focuses on the U.S. domestic passenger air transportation system. We begin with a general presentation of four methods (ratio-based, deterministic frontier, stochastic frontier, and data envelopment analysis) and three perspectives for assessing airline fuel efficiencies, the latter covering consideration of only mainline carrier operations, mainline–subsidiary relations, and airline routing circuity. Airline fuel efficiency results in the short run, in particular the correlations of the results from using different methods and considering different perspectives, are discussed. For the long-term efficiency, we present the development of a stochastic frontier model to investigate individual airline fuel efficiency and system overall evolution between 1990 and 2012. Insight about the association of fuel efficiency with market entry, exit, and airline mergers is also obtained.

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Article
Publication date: 1 March 2003

E. Stewart Saunders

Examines 88 academic member libraries of the Association of Research Libraries (ARL) to determine their relative cost efficiency, using stochastic frontier regression and…

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1360

Abstract

Examines 88 academic member libraries of the Association of Research Libraries (ARL) to determine their relative cost efficiency, using stochastic frontier regression and data envelopment analysis (DEA) methods. Both methods give average ARL cost efficiencies of around 80 percent. This places academic ARL libraries in the same range of efficiency as other institutions, including for‐profit and non‐profit institutions. Many libraries are above 80 percent efficiency. For those below, some speculation is given for the lower efficiency. The lack of an output measure for the use of electronic sources may contribute to lower efficiency for a few libraries. Large staff size and a large number of serial subscriptions do predict lower efficiency, but this is not a necessary consequence. The DEA model allows us to determine increasing, constant, or declining returns to scale for research libraries. From this, it appears research libraries with expenditures between $10,000,000 and $20,000,000 are operating at the most efficient scale. Since the methods used are outside the repertoire of most LIS research, a conceptual explanation is provided.

Details

The Bottom Line, vol. 16 no. 1
Type: Research Article
ISSN: 0888-045X

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Article
Publication date: 29 November 2018

Thanh Pham Thien Nguyen

Given some similarities in the banking industry and economic condition across Vietnam, China and India, the purpose of this paper is to estimate and compare the cost and…

Abstract

Purpose

Given some similarities in the banking industry and economic condition across Vietnam, China and India, the purpose of this paper is to estimate and compare the cost and revenue efficiency of banks across these three countries over the period 1995–2011.

Design/methodology/approach

This study employs the meta-frontier of Battese et al. (2004) and O’Donnell et al. (2008) which envelops the three country-frontiers to measure the cost and revenue efficiency of banks in these three countries.

Findings

This study finds that Chinese banks adopt the most advanced cost-reducing and revenue-increasing technology when providing banking products to their customers, followed by Indian banks. Indian banks are as cost-efficient as Chinese banks, but more cost-efficient than Vietnamese banks. Indian banks are as revenue-efficient as Vietnamese banks, but less revenue-efficient than Chinese banks. Over the analysis period, banks in the three countries have employed the more advanced technology in reducing costs, and they have become more cost-efficient. Nonetheless, for revenue side, the improvement in revenue efficiency and adopted technology are observed only in Chinese banks. The main source of meta-cost and meta-revenue inefficiency of these banking systems stems from undertaking inferior technology rather than managerial ability. Results from comparison across bank types show that state-owned banks (SOBs) are more cost and revenue-efficient than privately owned banks, with Indian and Chinese SOBs being the most cost- and revenue-efficient, respectively.

Practical implications

To improve meta-cost efficiency, Chinese and Indian banks would constitute a relevant benchmark for Vietnamese banks, while to improve meta-revenue efficiency, Chinese banks would be considered as a relevant benchmark for Vietnamese and Indian banks.

Originality/value

This is the first study which utilizes meta-frontier to compare cost and revenue efficiency and technology across banks in Vietnam, China and India.

Details

Benchmarking: An International Journal, vol. 25 no. 9
Type: Research Article
ISSN: 1463-5771

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Article
Publication date: 31 October 2008

K.M. Matawie and A. Assaf

The major aim of this paper is to model, estimate and compare the technical efficiency and technology gap ratios of health care foodservice operations that operate in…

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595

Abstract

Purpose

The major aim of this paper is to model, estimate and compare the technical efficiency and technology gap ratios of health care foodservice operations that operate in different Australian regions.

Design/methodology/approach

This paper uses a metafrontier model to analyse the difference in health care food efficiency across the various Australian regions. The interesting feature of this model is that it allows for the estimation of firms' efficiency in of various groups that might differ in technology and other production environments. In testing the model, cross‐sectional input/output data were used reflecting on the operational characteristics of health care foodservice operations.

Findings

The estimation process was initially supported by a hypothesis test which confirmed the validity of the metafrontier model in comparing the efficiency of the different outlined groups. Results showed that operations in the states of NSW and Victoria are producing on average 85.6 per cent of their potential output with respect to the metafrontier technology. The ratio is lower in other states with an average of 73.4 per cent. The average technical efficiency for operations in NSW and Victoria is also higher both in terms of local (87.8 per cent) and metafrontier technologies (66.6 per cent).

Originality/value

The paper is the first to introduce the metafrontier model to the health care foodservice area, especially for Australian regions.

Details

Journal of Modelling in Management, vol. 3 no. 3
Type: Research Article
ISSN: 1746-5664

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Book part
Publication date: 23 August 2011

Matthew E. Sarkees and Ryan Luchs

Purpose – This chapter explores the basic characteristics of stochastic frontier estimation, discusses advantages of the method that make it conducive to research in…

Abstract

Purpose – This chapter explores the basic characteristics of stochastic frontier estimation, discusses advantages of the method that make it conducive to research in international marketing, and provides an application to demonstrate its use. Potential applications in international marketing research are also discussed.

Methodology – Stochastic Frontier Estimation.

Findings – Stochastic frontier estimation models, prevalent in other fields, are very limited in the international marketing literature. Many potential opportunities exist for its use in the context of international marketing.

Originality/value of paper – The intent of this chapter is to show that stochastic frontier estimation is a potentially valuable tool for international marketing research. We show this by demonstrating the use of the tool and by providing examples of potential research studies.

Details

Measurement and Research Methods in International Marketing
Type: Book
ISBN: 978-1-78052-095-7

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Article
Publication date: 1 October 2020

Bowen Zheng, Yarou Wang, Muhammad Abdul Kamal and Assad Ullah

Culture and institutions are among the essential sources of comparative advantage in international trade and may influence a country's FDI influx. This paper aims to…

Abstract

Purpose

Culture and institutions are among the essential sources of comparative advantage in international trade and may influence a country's FDI influx. This paper aims to analyze the impact of cultural distance (CD) and institutional distance (ID) on the efficiency of China's outward foreign direct investment (OFDI) for the panel of 43 countries during 2003–2016.

Design/methodology/approach

The stochastic frontier approach (SFA) has been incorporated into the standard gravity model of gravity Kalirajan, 1999; Ravishankar and Stack, 2014). SFA has traditionally been implemented to evaluate the production frontier as the highest yield that could possibly be generated from specified input levels. The production process is viewed to be fully efficient if the real output is performed at frontier level. Otherwise, the production process is assumed technically inefficient, which implies potential scope for enhanced output. This error term is split into two parts, a non-negative term and more standard asymmetrical term. The former identifies inefficiencies in production, while the latter retrieves random disorders

Findings

The outcomes assert a U-shaped relationship between CD and the efficiency of China's OFDI. Put differently, when the CD is minimal, the “liability of foreignness” (LOF) effect plays a dominant role; and CD tends to reduce the efficiency of China's OFDI. On the flip side, when the culture distance is greater than a certain threshold level, the “advantages of foreignness” (AOF) effect plays a predominant role, and CD improves the efficiency of China's OFDI. Institutional distance results in the “LOF” effect significantly reduce the efficiency of China's OFDI.

Research limitations/implications

Notwithstanding these contributions, our study has some limitations which offer directions for future research. The major limitation of this research work is the availability of comprehensive data for a well extended time, in particular for the variable of CD. Further, a firm-level study can shed light on the motivations and performance of China OFDI. Finally, given that our analysis focuses on emerging market multinational enterprises (EMNEs) from China, the findings might not be explicitly generalizable to MNEs from other developing countries. Future studies should concentrate on the comparative study of China's OFDI with other developing countries, to deepen our understanding of the effects of ID and CD on the efficiency of OFDI.

Originality/value

(1) The work is novel in nature as the authors attempt to explore the effect of ID and CD on efficiency of Chinese FDI. To the best of the authors’ knowledge, no research is conducted in this direction in terms of Chinese FDI. (2) Further, the prior studies employed standard gravity model, which may not correctly evaluate the trade potential viewed as the highest potential value. To overcome the shortcomings of the standard gravity model in estimation of the trade performance and efficiency, the SFA has been incorporated into the standard gravity model of gravity.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 23 November 2010

Kolawole Ogundari

The purpose of this paper is to examine cost efficiency and its determinants in Nigerian sawmill industries.

Abstract

Purpose

The purpose of this paper is to examine cost efficiency and its determinants in Nigerian sawmill industries.

Design/methodology/approach

A stochastic frontier model is employed on a total of 160 mills randomly selected across five states in south‐western Nigeria in 2006.

Findings

The results show an estimated average cost efficiency of 1.262. This suggests that an average mill incurs about 26 per cent costs above the frontier cost when processing planks from logs. Further analysis indicates that a significant level of cost ineffisciency is present in Nigeria's sawmilling industry. Analysis of determinants of cost efficiency reveals that more years of education, experience, age, and level of capital investment reduce cost inefficiencies between 7 and 16 per cent. Sawmill operation is found to be associated with economies of scale in the study area.

Originality/value

The paper contributes to existing studies on the efficiency of sawmill industries in Nigeria by taking a holistic assessment of the industry from a cost perspective.

Details

China Agricultural Economic Review, vol. 2 no. 4
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 6 April 2012

Vu Hoang Linh

The purpose of this paper is to estimate technical efficiency obtained from both data envelopment analysis (DEA) and stochastic frontier approaches using household survey…

Abstract

Purpose

The purpose of this paper is to estimate technical efficiency obtained from both data envelopment analysis (DEA) and stochastic frontier approaches using household survey data for rice farming households in Vietnam.

Design/methodology/approach

A bootstrap method is used to provide statistical precision of the DEA estimator. Technical efficiency is modeled as a function of household and production factors.

Findings

The results from the deterministic, semi‐parametric and parametric approaches indicate that among other things, technical efficiency is significantly influenced by primary education and regional factors. In addition, scale efficiency analysis shows that many farms in Vietnam are operating with less than optimal scale of operation.

Originality/value

The study is among the first that employ a bootstrap method and compare estimates from both Data Envelopment Analysis (DEA) and stochastic frontier approaches.

Details

International Journal of Development Issues, vol. 11 no. 1
Type: Research Article
ISSN: 1446-8956

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Article
Publication date: 30 April 2021

Habtamu Alem

The study measures the technology gap and performance of the Norwegian dairy farms accounting for farm heterogeneity.

Abstract

Purpose

The study measures the technology gap and performance of the Norwegian dairy farms accounting for farm heterogeneity.

Design/methodology/approach

The analysis was based on a meta-frontier and unbalanced farm-level panel data for 1991–2014 from 417 Norwegian farms specialized in dairy production in five regions of Norway.

Findings

The result of the analysis provides empirical evidence of regional differences in technical efficiencies, technological gap ratios (TGRs) and input use. Consequently, the paper provides some insights into policies to increase the efficiency of dairy production in the country across all regions.

Research limitations/implications

The author used a meta-frontier approach for modeling regional differences based on a single-output production function specification. This approach has commonly been used in the economics literature since Battese et al. (2004). To get more informative and useful results, it would be necessary to repeat the analysis within terms of multiple input-output frameworks using, for instance, the input distance function approach. Moreover, the author estimated the meta-frontier using the non-parametric approach, thus it is also a need for further analysis if the values are different by estimating using a parametric approach.

Practical implications

One implication for farmers (and their advisers) is that dairy farms in all regions used available technology in the area sub-optimally. Thus, those lagging the best-performing farms need to look at the way the best-performing farmers are operating. Policymakers might reduce the gap is through training, including sharing information about relevant technologies from one area to another, provided that the technologies being shared fit the working environment of the lagging area. Moreover, some of the dairy technologies they use may not fit other regions, suggesting that agricultural policies that aim to encourage efficient dairy production, such as innovation of improved technology (like breeding, bull selection and improved feed varieties) through research and development, need to account the environmental differences between regions.

Social implications

For both taxpayers and consumers, one implication is that the contributions they pay that go to subsidize dairy farmers appear to bring some benefits in terms of more efficient milk production that, in turn, increases the supply of some foods so possibly making food prices more affordable.

Originality/value

The paper contributes to the literature in several ways. In contrast to Battese et al. (2004), the author accounts for farm-level performance differences by applying the model devised by Greene (2005), thus may serve as a model for future studies at more local levels or of other industries. Moreover, the author is fortunate to able to use a large level farm-level panel data from 1991 to 2014.

Details

International Journal of Productivity and Performance Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0401

Keywords

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