efficiency analysis for exogenously fixed inputs and outputs we evaluate by means of mathematical programming formulations the relative technical and scale efficiencies of decision making units dmus when some of the inputs or outputs are exogenously fixed and beyond the discretionary control of dmu managers this approach further develops the work on efficiency evaluation and on estimation of efficient production frontiers known as data envelopment analysis dea we also employ the model to provide efficient input and output targets for dmu managers in a way that specifically accounts for the fixed nature of some of the inputs or outputs we illustrate the approach using real data for a network of fast food restaurants

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

commercial branch performance evaluation and results communication in a canadian bank a dea application abstract in this paper we focus on evaluating the performance of the commercial branches of a large canadian bank using data envelopment analysis two production models are considered in this country wide evaluation one model looking directly at resource usage is most useful to the branch manager the other model incorporating financial results is more geared towards senior management we introduce non discretionary factors to reflect specific aspects of the environment a branch is operating in such as risk and economic growth rate of the region both input and output multipliers are constrained by incorporating market prices as well as managerial preferences in order to get effectiveness measures the cost minimisation study led to valuable results pertaining to the performance of individual branches notable is the methodology introduced here that shows how to present graphical and numeric outcomes to managers gap maps pie charts and target tables are produced for each branch to provide performance goals for the managers useful information has also been obtained at the district level output oriented models were analysed to reflect the bank s recent emphasis towards growth in some areas

measuring economic efficiency with incomplete price information with an application to european commercial banks measuring economic efficiency requires complete price information while resorting to technical efficiency exclusively does not allow one to utilise any price information in most studies at least some information on the prices is available from theory or practical knowledge of the industry under evaluation in this paper we extend the theory of efficiency measurement to accommodate incomplete price information by deriving upper and lower bounds for farrell s overall economic efficiency the bounds typically give a better approximation for economic efficiency than technical efficiency measures that use no price data whatsoever from an operational point of view we derive new data envelopment analysis dea models for computing these bounds using standard linear programming the practical application of these estimators is illustrated with an empirical application to large european union commercial banks

some unsolved problems in data envelopment analysis a survey abstract the present study is a survey of a set of inherent characteristics and unsolved problems in current dea models we will focus on what types of local characteristics the dea estimated technology exhibits in relation to non jointness of a multi output multi input production no indicators are currently available telling the analysts whether or not the structure in data supports the existence of a joint technology if the estimated ccr technology has a sparse facet structure in the sense that few facets are active for output vectors in certain cones of the output space then the multi output multi input ccr technology is possibly locally non joint another important field of research relates to the inclusion of explicit distributional assumptions as part of the dea model specification and to the extension of the dea estimation from an estimation of a deterministic frontier towards an estimation of a stochastic frontier some recent results will be compared finally measures of scale economies from parametric models and dea models will be compared

portfolio selection based on return risk and relative performance markowitz introduced the concept of portfolio selection based on return and variance recognition that many investors evaluate performance relative to a benchmark led to the idea of portfolio selection based on return and relative risk for many investors both approaches fail to yield satisfactory results although they acknowledge the importance of benchmarks in the decision process they are not indifferent to the variance of absolute returns in this situation a utility function that measures return variance and tracking error is more appropriate analysis of this utility function shows that its set of efficient portfolios includes the mean variance efficient set the mean tracking error efficient set and all convex combinations of these two sets optimization with this utility function may find solutions that investors will actually use

does gold offer a better protection against losses in sovereign debt bonds than other metals it is a commonly held view that gold protects investors wealth in the event of negative economic conditions in this study we test whether other metals offer similar or better investment opportunities in periods of market turmoil using a sample of 13 sovereign bonds we show that other precious metals palladium in particular offer investors greater compensation for their bond market losses than gold we also find that industrial metals especially copper tend to outperform gold and other precious metals as hedging vehicles and safe haven assets against losses in sovereign bonds however the outcome of the hedge and safe haven properties is not always consistent across the different bonds finally our analysis suggests that copper is the best performing metal in the period immediately after negative bond price shocks

asset allocation models and market volatility asset allocation and risk management models assume at least short term stability of the covariance structure of asset returns but actual covariance and correlation relationships fluctuate dramatically moreover correlations tend to increase in volatile periods which reduces the power of diversification when it might most be desired we propose a framework to both explain these phenomena and to predict changes in correlation structure we model correlations between assets as resulting from the common dependence of returns on a marketwide factor through this link an increase in market volatility increases the relative importance of systematic risk compared with the unsystematic component of returns the increase in the importance of systematic risk results in turn in an increase in asset correlations we report that a large portion of the variation in correlation structures can be attributed to variation in market volatility moreover market volatility contains enough predictability to construct use

estimation of profit functions when profit is not maximum this paper deals with derivation and implications of profit functions when profit is not maximum due to the presence of either technical inefficiency or allocative inefficiency or both we show that input demand and output supply elasticities and returns to scale are in general affected by these inefficiencies we also show that the overall profit efficiency is not necessarily the product of technical and allocative efficiencies meaning that technical and allocative inefficiencies are not necessarily independent estimation techniques are developed for both cross sectional and panel data models working of the model is illustrated using a panel of 60 salmon farms copyright 2001 oxford university press

frontier production functions and technical efficiency measures the concept of technical efficiency is central to measuring the firm performance the measurement of technical efficiency has proved difficult and complex and the literature provides a range of methodologies this paper reviews the various methodologies for measuring technical efficiency and offers a comparison between established methods of measurements the discussion is literary with less mathematical jargons and equations the objective of this paper is not to be exhaustive but to be up to date and to provide a significant discussion on some of the core methods of measuring technical efficiency

hyperbolic efficiency and return to the dollar abstract this paper after establishing the relations between hyperbolic graph measure of technical efficiency and the radial measures of technical efficiency shows that the dual cost and revenue interpretation of the hyperbolic efficiency measure is related to georgescu roegen s notion of return to the dollar n georgescu roegen in koopmans t ed activity analysis of production and allocation wiley new york 1951 pp 98 115 once this relation is established it leads to a derivation of an allocative efficiency index which measures the price distortions using data on observed costs and revenues without requiring information on prices

non parametric productivity analysis with undesirable outputs an application to the canadian pulp and paper industry this article extends the chavas cox approach to non parametric analysis by incorporating undesirable outputs to provide a more complete representation of the production technology inner and outer non parametric technology bounds are constructed the methods are illustrated with application to time series data for the canadian pulp and paper industry conventional measures that ignore changes in pollutant outputs underestimate true productivity growth further there is a large gap between estimates generated with reference to inner and outer bounds to the technology suggesting that researchers need to be aware of the limitations of results derived from analyses relying only on dea methods copyright 2001 oxford university press

measuring overall efficiency and effectiveness using dea this paper presents a framework where data envelopment analysis dea is used to measure overall efficiency and show how to apply this framework to assess effectiveness for more general behavioral goals the relationships between various cone ratio dea models and models to measure overall efficiency are clarified specifically it is shown that as multiplier cones tighten the cone ratio dea models converge to measures of overall efficiency furthermore it is argued that multiplier cone and cone ratio model selection must be consistent with the behavioral goals assigned or assumed for purposes of analysis consistent with this reasoning two new models are introduced to measure effectiveness when value measures are represented by separable or linked cones where the latter can be used to analyze profit maximizing effectiveness

estimating most productive scale size using data envelopment analysis abstract the relation between the most productive scale size mpss for paparticular input and output mixes and returns to scale for multiple inputs multiple outputs situations is explicitly developed this relation is then employed to extend the applications of data envelopment analysis dea introduced by charnes cooper and rhodes ccr to the estimation of most productive scale sizes for convex production possibility sets it is then shown that in addition to productive inefficiencies at the actual scale size the ccr efficiency measure also reflects any inefficiencies due to divergence from the most productive scale size two illustrations of the practical applications of these results to the estimation of most productive scale sizes and returns to scale for hospitals and stem electric generation plants are also provided emphasize the advantage of this method in examining specific segments of the efficient production surface

testing data for consistency with revealed preference the author develops a method of hypothesis testing for revealed preference tests this method is particularly well suited to tests of commonality of tastes or tests of preference stability he devises a metric based on an estimate of the fraction of expenditure wasted in maximizing utility if all consumers in the sample share the same utility function this metric increases in size with increases in the proportion of observations having different tastes and with increasing differences in tastes the author proposes bootstrap methods for estimating the distribution of the test statistic copyright 1995 by mit press

systemic risk and international portfolio choice returns on international equities are characterized by jumps moreover these jumps tend to occur at the same time across countries leading to systemic risk we capture these stylized facts using a multivariate system ofjump diffusion processes where the arrival of jumps is simultaneous across assets we then determine an investor s optimal portfolio for this model of returns systemic risk has two effects one it reduces the gains from diversification and two it penalizes investors for holding levered positions we find that the loss resulting from diminished diversification is small while that from holding very highly levered positions is large returns on international equities are characterized by jumps 1 moreover these jumps tend to occur at the same time across countries implying that conditional correlations between international equity returns tend to be higher in periods of high market volatility or following large downside moves 2 our objective in

nonparametric analysis of technical and allocative efficiencies in production in this paper we extend varian s 1984 nonparametric production analysis to situations when the set of observed output input and price data is not consistent with profit maximization for at least one firm in such cases varian s results imply that no production possibility set containing all observations can rationalize the observed data we identify each firm whose performance given the prices faced by it may be found consistent with profit maximization relative to some production possibility set containing all observed output input vectors we show that the set 4 of all such firms can itself be weaklv rationalized in the sense that there exists a closed convex and monotone production possibility set that contains all the observations and relative to which the performance of all the firms in the set 8o is consistent with profit maximization given their respective prices by definition firms not included in this largest set d of efficient observations unambiguously deviate from profit maximizing behavior for any production possibility set containing all observations we follow farrell 1957 and analyze these deviations into technical and allocative efficiency measures considering as admissible all closed convex and monotone production possibility sets relative to which the performance of each firm in the set g remains consistent with profit maximization we then describe nonparametric methods for determining the tightest upper and lower bounds on the technical allocative and aggregate efficiency measures evaluated relative to all such admissible production possibility sets it is seen that the tightest upper bound on the technical efficiency measure is the same as the value computed by the nonparametric efficiency evaluation technique known as data envelopment analysis thus establishing a link between this literature in management science operations research and the nonparametric production analysis in economics

analysis of trends in technical and allocative efficiency an application to texas public school districts abstract we present a new dea based method to analyze efficiency trends over time and differences across subgroups in a panel data setting we employ a result that the aggregate technical and allocative inefficiency score equals the technical inefficiency when input quantities are aggregated into a single total input cost variable and develop test procedures to evaluate the presence of allocative inefficiency we apply these methods to test for the presence of allocative inefficiency in texas school districts over 1993 99 and analyze shifts and trends in both technical and allocative inefficiencies over time for different regions our empirical results indicate the existence of statistically significant allocative inefficiencies while technical inefficiency increased over the six year sample period allocative inefficiency remained relatively stable during this period these results for the full sample obtain also when we repeat the analysis for different regions

privatization of nippon telegraph and telephone was it a good policy decision nippon telegraph and telephone ntt corporation was privatized in 1985 under the economic assertion that a public enterprise is less efficient and less profitable than a private enterprise this assertion is referred to as the property right theory in economics and it is used as a theoretical rationale for privatizing publicly owned organizations this article empirically examines the economic assertion by comparing ntt s performance before and after its privatization data envelopment analysis dea is used as the research tool in this study which confirmed the economic assertion in terms of production based efficiency measures but it cannot find any major difference in its cost reducing corporate efforts thus this study presents serious management problems occurring within the ntt s partial privatization the partial privatization is now prevailing in the telecommunications industry all over the world this article also discusses the japanese business environment which makes ntt managerially ineffective under its public private joint ownership

efficiency effectiveness and productivity of marketing in services abstract how can a service firm right size marketing expenses and yet strive to maximize revenue this paper represents the first attempt to model these efficiency and effectiveness issues using a 49 unit asia pacific hotel chain as illustration we employ a triangular dea model with total expenses controlling for number of rooms as the raw input marketing expenses as intermediate output input and revenues from room rentals and f b as final outputs we infer that efficiency tails off when more than 12 of the budget is expended on marketing activities in terms of effectiveness we find that all the units rated as relatively inefficient can accrue increasing returns to scale in revenues from marketing activities by contrast in the productivity stage linking the raw inputs to the revenues we observe mostly decreasing returns to scale our results highlight the crucial role of marketing in service organizations

measuring economic efficiency with incomplete price information abstract this note identifies and corrects a technical error in t kuosmanen g t post eur j oper res 134 2001 43 58

regime shifts implications for dynamic strategies corrected regime shifts present significant challenges for investors because they cause performance to depart significantly from the ranges implied by long term averages of means and covariances but regime shifts also present opportunities for gain the authors show how to apply markov switching models to forecast regimes in market turbulence inflation and economic growth they found that a dynamic process outperformed static asset allocation in backtests especially for investors who seek to avoid large losses

in defense of optimization the fallacy of 1 n previous research has shown that equally weighted portfolios outperform optimized portfolios which suggests that optimization adds no value in the absence of informed inputs this article argues the opposite with naive inputs optimized portfolios usually outperform equally weighted portfolios the ostensible superiority of the 1 n approach arises not from limitations in optimization but rather from reliance on rolling short term samples for estimating expected returns this approach often yields implausible expectations by relying on longer term samples for estimating expected returns or even naively contrived yet plausible assumptions optimized portfolios outperform equally weighted portfolios out of sample

piecewise loglinear estimation of efficient production surfaces linear programming formulations for piecewise loglinear estimation of efficient production surfaces are derived from a set of basic properties postulated for the underlying production possibility sets unlike the piecewise linear model of banker charnes and cooper banker r d a charnes w w cooper 1984 models for the estimation of technical and scale inefficiencies in data envelopment analysis management sci 30 september 1078 1092 this approach permits the identification of increasing marginal products and estimation of the classical s shaped production functions methods are also provided for estimating technical inefficiencies and other production characteristics such as rates of substitution and transformation marginal products returns to scale and most productive scale sizes on the basis of observed production data the results of a simulation study are reported to illustrate the usefulness of this estimation method in empirical applications when there are a priori reasons to expect increasing marginal products in some regions of the production function a modified model is provided to extend this analysis to the situation of non competing outputs addressed by the bi extremal model of banker charnes cooper and schinnar banker r d a charnes w w cooper a schinnar 1981 a bi extremal principle for frontier estimation and efficiency evaluation management sci 27 december 1370 1382

alternative methods for environmentally adjusted productivity analysis abstract advances in the productivity with which food is produced around the world have been made possible through the intensive use of industrial inputs that have important environmental impacts like standard measures of macroeconomic performance however commonly used measures of agricultural efficiency and productivity account only for marketed commodities and inputs but ignore the environmental effects of these production processes a more complete analysis of trends in the sector s productivity requires the use of models that incorporate these environmental effects to provide better measures of the contributions of the sector from the social point of view this paper compares the conceptual merits and empirical performance of alternative approaches that can be employed for this purpose input distance functions output distance functions nonparametric methods and index number approaches each of the methods has relative strengths and weaknesses the methods are empirically illustrated using data from the canadian pulp and paper industry

a generalized distance function and the analysis of production efficiency a generalization of shephard s distance functions is proposed extending the usefulness of distance functions in economic analysis applications to efficiency measurements and productivity analysis are presented new indexes of productivity and technical allocative and scale efficiency are proposed and analyzed interpretation of these indexes in terms of ray average cost ray average revenue and cost to revenue ratio is discussed

credit intermediation and the transmission of macro financial uncertainty international evidence abstract this paper introduces a novel measure of global macro financial uncertainty and examines the state dependent transmission of uncertainty to economic activity we show that global uncertainty shocks have adverse and nonlinear macroeconomic effects with the nonlinearity being driven by different levels of country specific banking sector distress both macroeconomic and financial market uncertainty are associated with lower economic activity with the latter exerting stronger effects the state dependency of the effect is prevalent in both cases our findings have important policy implications highlighting both the state of the banking sector as well as the origin of uncertainty as crucial factors in the transmission of uncertainty

optimal portfolios in good times and bad recent experience with emerging market investments and hedge funds has highlighted the fact that risk parameters are unstable to address this problem we introduce a procedure for identifying multivariate outliers and use the outliers to estimate a new covariance matrix we suggest that a covariance matrix estimated from outliers characterizes a portfolio s riskiness during market turbulence better than a full sample covariance matrix we also introduce a procedure for blending an inside sample covariance matrix with one from an outlier sample this procedure enables one to express views about the likelihood of each risk regime and to differentiate one s aversion to them our framework collapses to the markowitz mean variance model if 1 we set the probabilities of the inside and outlying covariance matrixes equal to their empirical frequencies 2 we are equally averse to both risk regimes and 3 we estimate the inside and outlying covariances around the full sample s mean

the basis risk of catastrophic loss index securities abstract using a windstorm simulation model developed by applied insurance research we analyze the effectiveness of catastrophic loss index options in hedging hurricane losses for florida insurers the results suggest that insurers in the two largest size quartiles can hedge losses almost as effectively using contracts based on four intrastate indices as they can using contracts that settle on their own losses many insurers in the third largest size quartile also can hedge effectively using the intrastate indices but most insurers in the smallest quartile would encounter significant basis risk hedging using a statewide loss index is effective only for the largest insurers

a comparative application of data envelopment analysis and translog methods an illustrative study of hospital production this paper compares inferences about hospital cost and production correspondences from two different estimation models 1 the econometric modeling of the translog cost function and 2 the application of data envelopment analysis dea while there are numerous examples of the application of each approach to empirical data this paper provides insights into the relative strengths of the estimation methods by applying both models to the same data the translog results suggest that constant reruns are operant whereas the dea results suggest that both increasing and decreasing returns to scale may be observed in different segments of the production correspondence in turn suggesting that the translog model may be averaging diametrically opposite behavior on the other hand by examining the rate of output transformation both models agree that patient days devoted to care of children are more resource intensive than those devoted to adults or to the elderly in addition we compare estimates of technical efficiencies of individual hospitals obtained from the two methods the dea estimates are found to be highly related to the capacity utilization but no such relationship was found for the translog estimates this comparative application of different estimation models to the same data to obtain inferences about the nature of underlying cost and production correspondences sheds interesting light on the strengths of each approach and suggests the need for additional research comparing estimation models using real as well as simulated data

the roles of inter fuel substitution and inter market contagion in driving energy prices evidences from china s coal market abstract coal has been dominating energy supply and consumption in china with the country becoming the largest energy supplier and consumer worldwide due to inter fuel substitution of crude oil and inter market contagion of international coal market china s coal price might be interrelated with crude oil price and international coal price however the precise roles of these two effects in determining china s coal price are unknown this paper contributes to previous literature by investigating this issue we find that co movements between china s coal price and crude oil price largely hinge on the shares of oil and coal in china s energy mix while its co movements with international coal price depend on scales of coal trade inter fuel substitution dominated the interaction of china s coal market with other energy types but the importance of inter market contagion has been increasing we also find that china might have become an originator for driving the returns of crude oil and international coal in particular after 2008 furthermore china s coal market is still a net volatility recipient for shocks from both crude oil market and international coal market given the increased integration of global energy markets we anticipate this paper to provide a better understanding on the dynamic changes in china s coal prices

economic efficiency and frontier techniques abstract most of the literature related to the measurement of economic efficiency has based its analysis either on parametric or on non parametric frontier methods the choice of estimation method has been an issue of debate with some researchers preferring the parametric and others the non parametric approach the aim of this paper is to provide a critical and detailed review of both core frontier methods in our opinion no approach is strictly preferable to any other moreover a careful consideration of their main advantages and disadvantages of the data set utilized and of the intrinsic characteristics of the framework under analysis will help us in the correct implementation of these techniques recent developments in frontier techniques and economic efficiency measurement such as bayesian techniques bootstrapping duality theory and the analysis of sampling asymptotic properties are also considered in this paper