estimation of production technology when the objective is to maximize return to the outlay abstract this paper deals with estimation of production technology where endogeneous choice of input and output variables is explicitly recognized to address this endogeneity issue we assume that producers maximize return to the outlay we start from a flexible translog transformation function with a single output and multiple inputs and show how the first order conditions of maximizing return to the outlay can be used to come up with an estimating equation that does not suffer from the econometric endogeneity problem although the output and input variables are chosen endogenously this is because the regressors in this estimating equation are in ratio forms which are uncorrelated with the error term under the assumption that producers maximize return to the outlay the analysis is then extended to the multiple outputs and multiple inputs case with technical inefficiency although the estimating equations in both single and multiple output cases are neither production nor distance functions they can be estimated in a straightforward manner using the standard stochastic frontier technique without worrying about endogeneity of the regressors thus we provide a rationale for estimating the technology parameters consistently using an econometric model which requires data on only input and output quantities

asset substitution and structured financing this article shows how structured financing can be used to solve the asset substitution problem in a dynamic setting structuring induces the firm s owner to optimally choose the first best operating strategy even though the owner s value function might be locally convex concave which would ordinarily lead to overinvestment underinvestment in risky projects this result is demonstrated in two different continuous time settings one that is based on the risk shifting framework of leland 1998 and one that generalizes the scaled return model of green 1984 it is shown that the contractual nature of the structuring is a key determinant of the issuing firm s dynamic asset volatility furthermore unlike nonstructured financing the default conversion probability of a structured debt security may be increasing decreasing in the firm s total assets structured securities are therefore hedge assets which potentially explains the popularity of structured securities among investors and third party issuers

the excess sensitivity of layoffs and quits to demand excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements the specific nature of worker firm relations creates a situat

stochastic estimation of firm inefficiency using distance functions econometric estimation of allocative and technical efficiency has frequently been carried out using a shadow cost function and its associated share or demand equations since the problem is formulated in terms of shadow prices the effect of allocative inefficiency on input usage must be computed indirectly from input share or demand equations as an alternative approach we derive and estimate an input shadow distance system comprising the dual shadow input distance function and the price equations derived from the shadow cost minimization problem estimated shadow quantities provide direct estimates of the effect of allocative inefficiency on input usage one can also easily calculate firm and time varying technical inefficiency by decomposing the residuals we also compute returns to scale and the cost savings obtained by eliminating both types of inefficiency our approach is illustrated using a panel of u s railroads both the cost function and the distance function are valid representations of multioutput technologies the arguments of the cost function are output quantities and input prices while the arguments of the distance function are input and output quantities the input distance function measures the extent to which the firm is input efficient in producing a given set of outputs while the cost function assumes cost minimization by a firm which is input efficient the shadow cost function is a generalization of the cost function and depends on output quantities and shadow internal to the firm input prices rather than actual market input prices thus the shadow cost function assumes shadow cost minimization but not actual cost minimization this function has frequently been employed in fixed effects estimation of allocative efficiency ae and technical efficiency te an observed input vector is technically efficient if it is on the isoquant of the observed output vector an input vector is allocatively efficient if the radial contraction of the input vector to the isoquant is cost minimizing identification of parameters that measure ae can be achieved by the estimation of a shadow cost system comprising the actual cost equation and the share or input demand equations which are expressed in terms of shadow prices and output quantities shadow cost systems have been estimated by atkinson and halvorsen 1984 sickles good and johnson 1986 eakin and kniesner 1988 kumbhakar 1992 and atkinson and cornwell 1994 among others given panel data the deviation of shadow from actual input prices can be measured by price specific inefficiency parameters that may vary across firms and over time however the estimation of the effect of

estimating a non minimum cost function for hospitals hospital costs have been rigorously scrutinized by economists and health policy experts for several decades despite the large volume of research two related problems persist first although theoretical models of hospital behavior such as 9 and 10 suggest systematic deviations from cost minimization there has been little attention given to modelling and measuring this inefficiency second because cost minimization is a questionable maintained hypothesis most hospital cost research has not used cost functions that are dual to production technology consequently the technological concepts of scale and factor substitution are obscured we address these twin problems by developing and estimating a long run cost function that allows for systematic allocative inefficiency the parameter estimates we present also provide information on the traditional production concepts of scale and factor substitution as well as information on the size and source of allocative inefficiency in u s hospitals hospital services clearly comprise a large industry short term hospital expenditures were 120 billion in 1984 for example the u s short term hospital sector has increased in relative size by a factor of 2 5 since 1960 so that short term hospital expenditures are now about 3 6 percent of the gnp in the united states while industry size alone probably justifies an empirical investigation into the production technology for hospital services we are also motivated by the relevance of our findings to several health policy issues measures of scale economies are crucial in forming public policies concerning entry exit and mergers in the hospital industry yet most studies have not actually estimated the technological concept of scale elasticities of factor substitution are also technological and economic concepts that should be of interest to health policy makers these measures indicate the extent to which cost increases can be avoided by substituting away from the factor whose price has increased hospital cost estimates that do not include factor

sources of investment inefficiency the case of fixed asset investment in china abstract this study attempts to measure the inefficiency associated with aggregate investment in a transitional economy the inefficiency is decomposed into allocative and technical inefficiency based on standard production theory allocative inefficiency is measured by the deviation of actual investment from the theoretically desired investment demand institutional factors are then identified as part of the driving force of the deviation the resulting model is applied to chinese provincial panel data the main findings are chinese investment demand is strongly receptive to expansionary fiscal policies and inter provincial network effects the tendency of over investment remains even with signs of increasing allocative efficiency and improving technical efficiency

pre recession efficiencies and input allocation decisions of agricultural and critically insolvent banks abstractthe late 2000s economic recession is considered the longest economic downturn since the 1930s great depression declining real estate values ignited an increase in loan defaults and mortgage foreclosures that led to a surge of bank failures at a rate not experienced by the u s banking industry since the 1980s a total of 509 bank failures were recorded by the fdic from january 2007 december 2014 with nearly 60 of these failures occurring in 2009 and 2010 in contrast there were only 24 bank failures in the u s during the 7 year period prior to 2007 this study analyzed certain components of operating decisions made by banks that either survived or became critically insolvent during the late 2000s financial crisis using an input distance stochastic frontier function to estimate the technical efficiency te and allocative efficiency ae between agricultural banks and non agricultural banks this efficiency analysis was applied to a 7 year pre recession period and is designed to final out any

discretionary fiscal responses to the covid 19 pandemic we analyse discretionary fiscal responses to the covid 19 pandemic we distinguish policies for three phases of the pandemic 1 acute overall disruption 2 initial recovery phase and 3 the longer term we analyse measures already taken in 1 and consider measures relevant for 2 we distinguish between lump sum subsidies such as deferral of tax payments which may ease financial constraints and measures which intentionally affect incentives we also identify factors that are important given the short term nature of the measures

the price setting behavior of banks an analysis of open end leverage certificates on the german market abstract this paper presents the first analysis of open end leverage certificates on the german market the major innovations of these certificates are twofold first issuers announce a price setting formula according to which they are willing to buy and sell the certificates over time second the product s lifetime is potentially endless our main findings are that the price setting formula is i designed to strongly favor the issuer and ii is consistent with the main outcome of the life cycle hypothesis for structured financial products stoimenov p a wilkens s 2005 are structured products fairly priced an analysis of the german market for equity linked instruments journal of banking and finance 29 2971 2993 iii this holds for different product features and also in the presence of issuers credit risk and jump risk in the underlying

fiscal stress and the production of public safety a distance function approach abstract faced with increasing crime rates but nonincreasing budgets local governments are seeking cost saving means of providing public safety this paper investigates a bureaucracy s response to fiscal stress as well as its ability to efficiently substitute civilian for uniformed personnel exploiting duality theory a distance function is used to model technology retrieve information concerning substitutability and shadow prices of personnel and test for cost minimization morishima elasticities are adopted to allow for asymmetry in substitution between types of personnel it is found that the more adverse the public safety environment and budgetary condition the more efficiently resources are allocated

unemployment insurance and short time compensation the effects on layoffs hours per worker and wages we analyze two unemployment insurance systems in one unemployed workers receive benefits while those on reduced hours do not as in north america at least until recently in the other short time compensation is paid to workers on reduced hours as in europe the first system causes inefficient temporary layoffs for some parameters the latter does not but implies inefficient hours per worker some evidence is presented regarding these effects despite policymakers recent enthusiasm for short time compensation the clear implication of this project is that changes should come on the tax not benefit side of the system

hours layoffs and unemployment insurance funding theory and practice in an international perspective the strikingly different behaviour of important economic aggregates in the united states and other industrial countries has received surprisingly little attention from economists among recent exceptions however gordon i 982 has shown that wages and hours of work are much more flexible in the united kingdom and japan than in the united states such relative hours variability is confirmed in a macro analysis by capdevielle and alvarez i98i and at micro level by sengenberger and kohler i982 the latter authors are concerned with labour market adjustment within the u s and west german automobile industries between i 97 i and i 980 estimates of the german workeroutput elasticity are found to be less than half that of the united states while the german hours elasticity is twice the united states figure at the national aggregate level capdevielle and alvarez also reveal much greater employment variability in the united states than in most other oecd countries in the years following the i973 74 opec supply shock much in line with these employment hours observations moy and sorrentino i98i argue that after

gains from structured product markets the case of reverse exchangeable securities res abstract structured products sp have recently been introduced onto organized markets in the united states payoffs for such financially engineered securities typically combine stock bond and contingent claims features in this paper attention is focused upon reverse exchangeable securities res an important and rapidly growing segment of the american sp market first we undertake a replication of res payout with a linear portfolio of publicly traded securities in a simple no arbitrage framework it is thereby possible to estimate theoretically fair terms of issuance and contrast these with actual terms we conclude that there is a significant pricing bias in favor of the issuing financial institution credit enhancement resulting from observed positive correlation between the res terminal payoff and issuer financial performance is proposed as explanation for the apparent pricing discrepancy market completeness and possible tax advantages may also play a role in sp demand and the rapid expansion of this new derivatives market

output allocative and technical efficiency of banks abstract in this paper we calculate output allocative and technical efficiency for a sample of small banks operating in 1982 we do so by estimating a shephard type output distance function as a deterministic frontier in general we find that the banks in our sample are output inefficient

short time work benefits revisited some lessons from the great recession the great recession triggered a resurgence of short time work stw throughout the oecd several countries introduced stw from scratch or significantly expanded the scope of the programmes already in place in some countries like italy japan and germany between 2 5 and 5 of the workforce participated in stw schemes at the trough of the recession in this paper we analyse the rationale for stw benefits and their effects on labour adjustment from both a cross country and a time series perspective we find that stw actually contributed to reduce job losses during the great recession however the number of jobs saved according to our macroeconomic and microeconomic estimates is smaller than the number of participants in these schemes and the full time equivalent jobs involved pointing in some countries to sizeable deadweight costs other institutions like plant level bargaining over hours wages and employment levels may be more effective than stw in encouraging adjustment along the intensive margins in the presence of temporary shocks our results also suggest that stw cannot be readily extended to countries having much different institutional configurations as the demand for stw is very much affected by other institutions such as employment protection legislation and the degree of centralization of collective bargaining furthermore stw must be temporary as during upturns may actually negatively affect employment we also find that specific design features of stw such as experience rating and disincentives to 100 reductions in working hours are important in improving the cyclical properties of stw tito boeri and herbert bruecker

navigating the great recession the impact of working time accounts in germany the existence of working time accounts played an important role in overcoming the negative effects of the great recession in germany the authors analysis of data on establishments with a works co

excess input expenditure estimated by means of an input distance function the case of public railways the input distance function is used to estimate excess input expenditure with reference to four european public railways this technique exploits the properties of the input distance function and allows excess input cost to be estimated over a minimum level rather than excess input usage this simplifies the computation of the cost of allocative inefficiency making the estimations easier and more reliable the results for the four railway systems reveal a substantial and statistically significant input expenditure in excess over the minimum level when evaluated over the whole sample period 1971 87 however differences between the four systems reduce over time all of the public railway systems show a clear tendency towards the reduction of inefficiency independent of dimension

analysing wage differentials when workers maximize the return to human capital investment abstractthe analysis of the determinants of differences in wages across workers has traditionally relied on the estimation of average earnings functions in this article we propose a new theoretical model where it is the workers who decide the amount they wish to invest in human capital taking into account the costs of acquiring those skills for the purpose of maximizing earnings in this model both human capital and marginal productivity are likely to be influenced by the individual s unobserved characteristics such as ability or motivation potentially giving rise to endogeneity problems in this context the empirical implementation of our theoretical model allows us under certain assumptions to obtain consistent estimates even under the assumption of endogeneity we present an empirical application to the education sector using data from the spanish structure of earnings survey 2010 our results show that females and workers in the private education sector face more difficulties in achieving t

short time work some long run implications this paper outlines a simple model to examine some long run implications of short time work schemes stws on labor market performance and welfare it is not clear that stws reduce unemployment as the induced wage push discourages job creation

on the timing and efficiency of creative destruction we analyze the timing pace and efficiency of ongoing job reallocation that results from product and process innovation there are strong reasons why an efficient economy ought to concentrate both job creation and destruction during recessions when the opportunity cost of reallocation is lowest incomplete contracting between labor and capital can disrupt this synchronized pattern and decouple creation and destruction transactional difficulties also lead to technological sclerosis characterized by excessively slow renovation government incentives to production may alleviate high unemployment but exacerbate sclerosis in contrast creation incentives increase the pace of reallocation an optimal combination of both policies restores economic efficiency

slacks determinants in brazilian railways a distance friction minimization approach with fixed factors this study investigates the drivers for output increasing input saving potentials in the brazilian railway industry which has undergone significant transformations since its privatization in the mid 1990s the main research objective is to determine whether or not different types of cargoes and geographic regions serviced present a significant impact on railway slacks by applying a distance friction minimization dfm approach with fixed factors based on a balanced panel model secondary data from the period 2004 to 2012 were collected and analysed results support anecdotal evidence regarding a heterogeneous impact of types of cargo and geographic location on input reducing and output increasing potentials besides network length and average speed policy implications for railway authorities are also addressed by focusing on the specifics of each railway operator

the joint design of unemployment insurance and employment protection a first pass unemployment insurance and employment protection are typically discussed and studied in isolation in this paper we argue that they are tightly linked and we focus on their joint optimal design in a simple model with risk averse workers risk neutral firms and random shocks to productivity we show that in the first best unemployment insurance comes with employment protection in the form of layoff taxes indeed optimality requires that layoff taxes be equal to unemployment benefits we then explore the implications of four broad categories of deviations from first best limits on insurance limits on layoff taxes ex post wage bargaining and ex ante heterogeneity of firms or workers we show how the design must be modified in each case finally we draw out the implications of our analysis for current policy debates and reform proposals from the financing of unemployment insurance to the respective roles of severance payments and unemployment benefits

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

temporary agency work and the great recession we investigate with german data how the use of temporary agency work has helped establishments to manage the economic and financial crisis in 2008 09 we examine the regular workforce development use of short time work and business performance of establishments that made differential use of temporary agency work prior to the crisis overall our results suggest that establishments with a greater use of temporary agency work coped better with the sharp decline in demand and made less frequent use of government sponsored short time work schemes

the allocative efficiency measure by means of a distance function the case of spanish public railways abstract this paper is an empirical application of the distance function to study the allocative efficiency of a regulated railway spanish firm renfe where the cost minimising hypothesis may be questioned besides and in contrast with other studies we include the possibility of the presence of persistent allocative inefficiency to achieve these aims we have estimated a system of equations for the inputs distance function and cost shares using annual data over the period 1955 95 using this procedure we have checked the presence of persistent allocative inefficiency in particular a systematic overutilisation of labour and underutilisation of capital moreover we have found some empirical evidence that since 1984 management contracts have improved the input allocation in spanish railways

the relative efficiency of public and private firms in a regulated environment the case of u s electric utilities abstract the relative efficiency of privately owned and publicly owned electric utilities is investigated using theoretical and econometric models that allow for the effects of both ownership type and regulation the estimation results indicate that the two types of firms are equally cost inefficient in the united states the average effect of inefficiency is to increase the cost of production by 2 4 percent holding output constant inefficiency increases the average quantities demanded of capital and labor and decreases the average quantity demanded of fuel