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Book part
Publication date: 21 December 2010

Saleem Shaik and Ashok K. Mishra

In this chapter, we utilize the residual concept of productivity measures defined in the context of normal-gamma stochastic frontier production model with heterogeneity to…

Abstract

In this chapter, we utilize the residual concept of productivity measures defined in the context of normal-gamma stochastic frontier production model with heterogeneity to differentiate productivity and inefficiency measures. In particular, three alternative two-way random effects panel estimators of normal-gamma stochastic frontier model are proposed using simulated maximum likelihood estimation techniques. For the three alternative panel estimators, we use a generalized least squares procedure involving the estimation of variance components in the first stage and estimated variance–covariance matrix to transform the data. Empirical estimates indicate difference in the parameter coefficients of gamma distribution, production function, and heterogeneity function variables between pooled and the two alternative panel estimators. The difference between pooled and panel model suggests the need to account for spatial, temporal, and within residual variations as in Swamy–Arora estimator, and within residual variation in Amemiya estimator with panel framework. Finally, results from this study indicate that short- and long-run variations in financial exposure (solvency, liquidity, and efficiency) play an important role in explaining the variance of inefficiency and productivity.

Details

Maximum Simulated Likelihood Methods and Applications
Type: Book
ISBN: 978-0-85724-150-4

Book part
Publication date: 18 October 2019

Eri Nakamura, Takuya Urakami and Kazuhiko Kakamu

This chapter examines the effect of the division of labor from a Bayesian viewpoint. While organizational reforms are crucial for cost reduction in the Japanese water…

Abstract

This chapter examines the effect of the division of labor from a Bayesian viewpoint. While organizational reforms are crucial for cost reduction in the Japanese water supply industry, the effect of labor division in intra-organizational units on total costs has, to the best of our knowledge, not been examined empirically. Fortunately, a one-time survey of 79 Japanese water suppliers conducted in 2010 enables us to examine the effect. To examine this problem, a cost stochastic frontier model with endogenous regressors is considered in a cross-sectional setting, because the cost and the division of labor are regarded as simultaneously determined factors. From the empirical analysis, we obtain the following results: (1) total costs rise when the level of labor division becomes high; (2) ignoring the endogeneity leads to the underestimation of the impact of labor division on total costs; and (3) the estimation bias on inefficiency can be mitigated for relatively efficient organizations by including the labor division variable in the model, while the bias for relatively inefficient organizations needs to be controlled by considering its endogeneity. In summary, our results indicate that integration of internal sections is better than specialization in terms of costs for Japanese water supply organizations.

Details

Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part B
Type: Book
ISBN: 978-1-83867-419-9

Keywords

Article
Publication date: 27 April 2012

Kevin Duncan, Peter Philips and Mark Prus

The aim of this paper is to use stochastic frontier regression to measure the effect of the introduction and expansion of prevailing wage requirements on the cost…

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Abstract

Purpose

The aim of this paper is to use stochastic frontier regression to measure the effect of the introduction and expansion of prevailing wage requirements on the cost efficiency of public school construction in British Columbia. The results provide evidence from a specific sector and location that contributes to the accumulated evidence on the topic.

Design/methodology/approach

Stochastic frontier regression is used to measure the effect of the introduction and expansion of prevailing wage requirements on the cost efficiency of public school construction in British Columbia. The results of a likelihood ratio test indicate that stochastic frontier regression is preferred to OLS cost estimation because of the presence of statistically different cost inefficiencies across a sample of covered and uncovered projects.

Findings

Specifically, projects covered by the introductory stage of the wage requirements are significantly less cost efficient compared to other public school projects. However, by the time of the expansion of the wage policy 17 months later, covered projects were no more cost inefficient than other projects. The results indicate that if prevailing wage laws are associated with changes in the cost efficiency of construction, stochastic frontier regression is the preferred estimation technique.

Research limitations/implications

This is the first study of its kind with results specific to school construction in British Columbia. Further research based on data from other projects may/may not confirm the existence of differences in construction cost inefficiencies for projects covered by construction wage policies.

Social implications

By implication, the results suggest that if the cost inefficiency of prevailing wage laws is short‐lived, the impact on the total cost of construction may similarly be ephemeral. The results imply that prevailing wage regulations do not contribute to long‐run construction cost inefficiency.

Originality/value

This is the first study to use stochastic frontier regression to examine the cost inefficiencies associated with prevailing wage laws. Previous studies that examine the effect of the wage policy on construction costs are based on OLS estimation.

Details

Engineering, Construction and Architectural Management, vol. 19 no. 3
Type: Research Article
ISSN: 0969-9988

Keywords

Book part
Publication date: 18 October 2019

Gholamreza Hajargasht and William E. Griffiths

We consider a semiparametric panel stochastic frontier model where one-sided firm effects representing inefficiencies are correlated with the regressors. A form of the…

Abstract

We consider a semiparametric panel stochastic frontier model where one-sided firm effects representing inefficiencies are correlated with the regressors. A form of the Chamberlain-Mundlak device is used to relate the logarithm of the effects to the regressors resulting in a lognormal distribution for the effects. The function describing the technology is modeled nonparametrically using penalized splines. Both Bayesian and non-Bayesian approaches to estimation are considered, with an emphasis on Bayesian estimation. A Monte Carlo experiment is used to investigate the consequences of ignoring correlation between the effects and the regressors, and choosing the wrong functional form for the technology.

Details

Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part B
Type: Book
ISBN: 978-1-83867-419-9

Keywords

Book part
Publication date: 31 May 2016

Chunyan Yu

This chapter provides a survey of alternative methodologies for measuring and comparing productivity and efficiency of airlines, and reviews representative empirical…

Abstract

This chapter provides a survey of alternative methodologies for measuring and comparing productivity and efficiency of airlines, and reviews representative empirical studies. The survey shows the apparent shift from index procedures and traditional OLS estimation of production and cost functions to stochastic frontier methods and Data Envelopment Analysis (DEA) methods over the past three decades. Most of the airline productivity and efficiency studies over the last decade adopt some variant of DEA methods. Researchers in the 1980s and 1990s were mostly interested in the effects of deregulation and liberalization on airline productivity and efficiency as well as the effects of ownership and governance structure. Since the 2000s, however, studies tend to focus on how business models and management strategies affect the performance of airlines. Environmental efficiency now becomes an important area of airline productivity and efficiency studies, focusing on CO2 emission as a negative or undesirable output. Despite the fact that quality of service is an important aspect of airline business, limited attempts have been made to incorporate quality of service in productivity and efficiency analysis.

Article
Publication date: 5 September 2016

Zhaobin Fan, Ruohan Zhang, Xiaotong Liu and Lin Pan

The purpose of this paper is to estimate the China’s outward FDI efficiency and it determinants in 69 countries along the Belt and Road over the period of 2003-2013.

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Abstract

Purpose

The purpose of this paper is to estimate the China’s outward FDI efficiency and it determinants in 69 countries along the Belt and Road over the period of 2003-2013.

Design/methodology/approach

This paper defines the extent of the Belt and Road in terms of geographical boundaries, justifying the application of the stochastic frontier gravity model to the FDI analysis, and then constructing a frontier regression model to assess the China’s outward FDI efficiency and it determinants in countries along the Belt and Road.

Findings

Regarding the core gravity parameter estimates, China’s outward FDI was highly consistent with the gravity model. As far as policy parameters are concerned, China’s outward FDI was significantly restricted by some man-made barriers in host countries. According to the estimated FDI efficiency scores, China has huge outward FDI potential in countries along the Belt and Road. In general, China’s outward FDI efficiency demonstrated a consistent uptrend from the perspectives of both FDI flows and stocks over the period of 2003-2013. Although China’s outward FDI performance indicated a very uneven pattern across different countries and periods, there were no significant performance differences between the Road and Belt.

Practical implications

The Belt and Road initiative can be largely beneficial to China’s outward FDI, but the specific framework of cooperation should be designed on the basis of determinants of China’s outward FDI. The regional cooperation with the Road countries should mainly focus on the removal of business barriers and financial barriers. The regional cooperation with the Belt countries should mainly concern the improvement of local intellectual property protection, the reduction of local tax burden, and removal of business barriers and financial barriers.

Originality/value

To the authors’ best knowledge, no existing literature has specifically examined the efficiency of China’s outward FDI in the countries along the Belt and Road and its determinants.

Details

China Agricultural Economic Review, vol. 8 no. 3
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 16 August 2022

Abebayehu Girma Geffersa

The purpose of this paper is to measure technical efficiency and examine its determinants while disentangling unobserved time-invariant heterogeneity from actual…

Abstract

Purpose

The purpose of this paper is to measure technical efficiency and examine its determinants while disentangling unobserved time-invariant heterogeneity from actual inefficiency using comprehensive household-level panel data.

Design/methodology/approach

This paper estimates technical efficiency based on the true random-effects stochastic production frontier estimator with a Mundlak adjustment. By utilising comprehensive panel data with 4,694 observations from 39 districts of four major maize-producing regions in Ethiopia, the author measures technical efficiency and examine its determinants while disentangling unobserved time-invariant heterogeneity from technical inefficiency. By using competing stochastic production frontier estimators, the author provides insights into the influence of farm heterogeneity on measuring farm efficiency and the subsequent impact on the ranking of farmers based on their efficiency scores.

Findings

The study results indicate that ignoring unobservable farmer heterogeneity leads to a downwards bias of technical efficiency estimates with a consequent effect on the ranking of farmers based on their efficiency scores. The mean technical efficiency score implied that about a 34% increase in maize productivity can be achieved with the current input use and technology in Ethiopia. The key determinants of the technical inefficiency of maize farmers are the age, gender and formal education level of the household head, household size, income, livestock ownership, and participation in off-farm activities.

Research limitations/implications

While the findings of this study are critical for informing policy on improving agricultural production and productivity, a few important things are worth considering in terms of the generalisability of the findings. First, the study relied on secondary data, so only a snapshot of environmental factors was accounted for in the empirical estimations. Second, there could be other sources of unmeasured potential sources of heterogeneity caused by persistent technical inefficiency and endogeneity of inputs. Third, the study is limited to one country. Therefore, future research should extend the analysis to ensure the generalisability of the empirical findings regarding the extent to which unmeasured potential sources of heterogeneity caused by persistent technical inefficiency, endogeneity of inputs and other unobservable country-specific features – such as geographical differences.

Originality/value

This paper contributes to the literature on agricultural productivity and efficiency by providing new evidence on the influence of unobservable heterogeneity in a farm efficiency analysis. While agricultural production is characterised by heterogeneous production conditions, the influence of unobservable farm heterogeneity has generally been ignored in technical efficiency estimations, particularly in the context of smallholder farming. The value of this paper comes from disentailing producer-specific random heterogeneity from the actual inefficiency.

Details

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

Keywords

Article
Publication date: 4 November 2014

Syed Manzur Quader and Michael Dietrich

Using a panel of 1,122 UK firms listed on the London Stock Exchange over the period of 1981-2009, corporate efficiencies are predicted in this paper as inverse proxies of…

Abstract

Purpose

Using a panel of 1,122 UK firms listed on the London Stock Exchange over the period of 1981-2009, corporate efficiencies are predicted in this paper as inverse proxies of agency cost and the agency cost hypotheses are tested. The paper aims to discuss this issue.

Design/methodology/approach

Stochastic frontier analysis is used to estimate corporate efficiency of firms, but from two different perspectives. The long-run and short-run corporate efficiencies are predicted focussing on modern approach of value maximization and traditional approach of profit maximization, respectively.

Findings

The estimation results reveal that, an average firm in the sample achieves 74.5 percent of its best performing peer's market value and 86.6 percent of its best performing peer's profit and both of them are highly significant in the analysis. The long-run market value efficiency supports the agency cost of outside equity and the short-run profit efficiency supports the agency cost of outside debt hypothesis. Also there is a positive rank correlation between these two efficiencies which confirms that an average firm in the UK suffers from inefficiency or agency conflicts to a certain extent, no matter whether the firm is driven by short-run or long-run growth perspectives.

Research limitations/implications

The predicted broad measures of agency costs in the paper have wider implications in enhancing the understanding of the UK firms’ corporate performance especially when they operate under a relatively free and market based governance and financial system.

Originality/value

The work is distinguished by the large panel of UK firms and a long period of time that is considered. Emphasizing on the empirical implications of the distinctions between short-run and long-run efficiency is also novel.

Details

International Journal of Productivity and Performance Management, vol. 63 no. 8
Type: Research Article
ISSN: 1741-0401

Keywords

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

Keywords

Book part
Publication date: 3 June 2021

Prasanta Kumar Roy, Mihir Kumar Pal and Purnendu Sekhar Das

The chapter examines the sources of total factor productivity growth (TFPG) of the 2-digit manufacturing industries as well as total manufacturing industry of Gujarat…

Abstract

The chapter examines the sources of total factor productivity growth (TFPG) of the 2-digit manufacturing industries as well as total manufacturing industry of Gujarat during the period from 1981–82 to 2010–11, using a stochastic frontier approach. The empirical finding clearly states that although factor accumulations as well as resource allocations in most of the 2-digit manufacturing industries of the state have been improved during the postreform period, technological progress (TP) and technical efficiency change (TEC) of the same have deteriorated in most industries of the state during that period. As a result TFPG in the major manufacturing industries as well as total manufacturing industry of the state have declined because the combined effect of their improvement in scale effect (SC) and allocation efficiency effect (AEC) could not offset the declining effect of both the TP and TEC of the same during that period. In this context, the government should take some policy initiatives to improve productive efficiency of the organized manufacturing industries in Gujarat. Once efficiency increases, it enhances competitiveness, thereby increasing productivity growth and its different sources of organized manufacturing industries of the state.

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