allocative inefficiency and the capital energy controversy abstract the purpose of the paper is to estimate a system of input demands for greek manufacturing deviating from the standard practice of assuming strict cost minimization the study allows for the presence of price distortions and allocative inefficiency in the decision process this assumption affects parameter estimates and estimated elasticities materially and throws new light on the capital energy controversy in greek manufacturing

the substitutability of non fossil energy potential carbon emission reduction and energy shadow prices in china abstract the rapidly increasing consumption of energy and fossil fuel dominated energy structure have caused great pressure on energy security and carbon reduction policies in china and the chinese government has attempted to substitute fossil with non fossil energy to investigate the feasibility of replacing fossil energy with non fossil energy in china we apply an input distance function to estimate the substitutability of non fossil energy for fossil energy and compare shadow prices the result confirms the feasibility of substituting non fossil energy for fossil energy we then divide the non fossil energy into nuclear energy and renewable energy and find that nuclear energy is more suitable than renewable energy to substitute for fossil energy the shadow price ratio of non fossil to fossil energy is 268 41 on average in the study period the ratio experiences several fluctuations and shows a declining trend at the end of the study period implying that improving energy structure in china is very promising

a cost function of greek non ferrous metal industry abstract a translog cost function in the form of a third order series taylor expansion was used for the estimation of cost in the greek non ferrous metal industry which is based on an annual time series for the period 1969 1990 concerning the price of production factors the production volume and the total cost of production the estimated cost function permit us to have average and marginal cost curves of typical form for each time point also it is useful for projecting costs and the optimum scale of production under conditions which concern 1 i the development of prices production and product factors and 2 ii demand

parametric efficiency tests economies of scale and input demand in u s electric power generation duality theory has been applied increasingly in recent years to study the structure of production a major advantage of using duality theory is that systems of input demand equations can be derived by simple differentiation facilitating the use of flexible functional forms also use of duality theory makes it possible to choose a representation of the technology which has desirable properties for estimation such as exogeneity of the regressors however the use of a dual representation of production structure is appropriate only if the corresponding maintained hypothesis concerning economic behavior e g cost minimization or profit maximization is valid the perceived advantages of the dual approach to studying production structure have led to some applications in which the maintained hypothesis concerning economic behavior is unlikely to be appropriate for example neoclassical cost functions have been used to study the characteristics of production in regulated industries despite an extensive theoretical literature indicating that a profit maximizing regulated firm would not minimize costs subject to market prices 2 in this paper we propose a generalized cost function that retains the principal advantages of the neoclassical cost function but does not require that cost minimization subject to market prices be imposed as a maintained hypothesis in our model firms are assumed to base their production decisions on unobservable shadow prices which reflect the effects of regulation on the effective prices of inputs parametric tests for cost minimization are obtained by expressing shadow prices as functions of market prices the generalized cost function is estimated with data for regulated electric utilities the parametric restrictions corresponding to cost minimizing behavior subject to market prices are rejected implying that the use of a neoclassical cost function is not appropriate in this application 3

the substitutability of nuclear capital for thermal capital and the shadow price in the korean electric power industry as part of ongoing efforts to reduce co2 emissions by increasing the proportion of the energy mix relying on nuclear power it may be useful to substitute nuclear power for thermal power wherever possible thereby substantially reducing the need to use fossil fuels in order to evaluate the contribution of nuclear power to potential co2 reduction this study examines the substitutability of thermal capital and nuclear capital in the korean electric power industry by utilizing the input distance function additionally the unit costs of thermal capital and nuclear capital are compared in terms of their shadow prices which are defined as the opportunity costs inherent to one additional unit of capital increase deriving from a reduction in labor the empirical results presented herein indicate that nuclear capital is readily substituted for thermal capital but the substitutability of thermal capital for nuclear capital is relatively low the shadow price ratio of nuclear capital to thermal capital is estimated to be 15 9 on average showing an upward trend over the years from 1982 to 2010

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

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

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

efficiency and vertical integration the case of mine mouth electric generating plants this paper tests four propositions regarding the efficiency of vertical arrangements 1 vertically integrated and nonintegrated firms allocate inputs with efficiency and 2 achieve equal technical efficiency 3 upstream transaction specific investments provide monopsony power and 4 monopsony behavior does not differ by vertical arrangement a behavioral cost function for mine mouth generating plants is estimated the findings include significant differences in the allocative efficiency of integrated versus nonintegrated plants and increased technical efficiency for vertically integrated plants transaction specific investments in mines provide monopsony power nonintegrated plants exercise this power while integrated plants do not copyright 1991 by blackwell publishing ltd

parametric tests of allocative efficiency in the manufacturing sectors of india and pakistan this paper estimates allocative inefficiency in the manufacturing sectors of india and pakistan based on an extension of the translog profit function approach we propose a new method to the estimation of allocative inefficiency in two countries or groups the model is estimated using pooled annual data from the large scale manufacturing sectors of india and pakistan over the period 1959 87 we find evidence of allocative inefficiencies in both countries specifically results reveal that manufacturing firms in the two countries over utilize capital and raw materials relative to labour and energy the magnitude of over utilization of capital is more severe in pakistan than in india we argue that these findings are hardly surprising given the structure of factor markets and past government policies in the two countries

technology development and the environment abstract in an attempt to achieve the positive externalities from a more knowledge intensive economy many developing countries have emphasized improvements in their science and technology st a substitution of energy for other factors of production and greater energy consumption by households our findings underscore the importance of considering the economy wide implications of a technology policy recognizing that better technology does not necessarily imply a cleaner environment

virtual prices and a general theory of the owner operated firm theories of entrepreneurial behavior for owner operated firms have a long history in economics these models treat the owner operator as both a producer and consumer of goods production and consumption choices result from utility maximization a preponderance of the work performed in this area has addressed two theoretical issues the consistency of utility and profit maximization and comparative static behavior of the entrepreneur scitovszky s seminal paper 29 demonstrates that under certain circumstances the entrepreneur may trade off income for leisure giving rise to the possibility of income effects on production and inconsistency of utility and profit maximization building on scitovszky s work graaff 14 clower 6 auster and silver 3 and lapan and brown 18 analyze the comparative static behavior of the utility maximizing owner operator and how this differs from the traditional neoclassical profit maximizing firm emphasis is on the possibility of income effects on production and how they may result in seemingly uneconomic behavior a shortcoming of this literature is the focus on special cases based on strong restrictions on technology constant returns to scale and the market for the entrepreneurial input no such market exists as of yet a general analysis of the comparative static behavior of the entrepreneur has not been undertaken scitovszky s work also initiated a vigorous debate concerning the consistency of utility and profit maximization for owner operated firms this debate centers on two principal questions does utility maximization imply profit maximization if not can a utility maximizing owner operated firm survive through time piron 25 olsen 23 24 and hannon 15 conclude that in competitive long run equilibrium utility maximizing entrepreneurs necessarily maximize profit and must do so to remain viable ladd 17 auster and silver 3 feinberg 8 9 10 and schlesinger 28 conclude that utility and profit maximization may diverge moreover these writers maintain that non profit maximizing owner operated firms can survive through time more re

competition and allocative efficiency the case of the u s telephone industry this study investigates the effect of competition on the productive efficiency of the u s telephone industry taking into account the fact that the industry was subject to rate of return regulation it is shown that competition induces the incumbents to use capital inputs closer to the unconstrained optima thereby reducing the allocative inefficiency caused by the averch johnson effect this effect is in addition to the usual technical efficiency improvement induced by competition empirical results based on annual data for the u s telephone industry for the 1951 90 period suggested that competition improved the allocative efficiency of the incumbent firms which had been under a rate of return regulation until 1989 copyright 1995 by mit press

the effect of sulfur regulations on the u s electric power industry a generalized cost approach abstract this paper estimates the effects of sulfur dioxide emission regulations on the us electric power industry during the 1975 1990 period by utilizing a generalized cost function along with shadow input prices in the presence of various regulations including those intended to control sulfur dioxide emissions firms will likely fail to minimize production costs the null hypothesis of cost minimization is rejected implying that the use of a neoclassical cost function is inappropriate for this study a comparison of the results obtained by estimating a generalized cost function and those obtained with a neoclassical cost function reveals that the use of a neoclassical restriction brings an underestimation of the average percentage increase in cost by 1 1 percentage points

are bureaucrats efficient an application to the provision of afdc the question on how bureaucrats behave in the provision of a public service has been the subject of a considerable amount of research most of which has been largely theoretical and inconclusive especially on the issue of efficiency this paper builds a bureaucratic theoretical model and provides empirical evidence by examining the workings of a government bureau supplying a public service namely aid to families with dependent children afdc at the state level it builds and estimates a generalized short run cost function that allows for systematic relative price inefficiency and does not require cost minimization subject to market prices as a maintained hypothesis the model tests cost minimization as a testable special case the estimating procedure allows us to test for a number of other features of the technology that are of interest such as productivity growth marginal costs returns to scale technical change and factor demands

the utility maximizing self employed physician we estimate a model of utility maximizing physician behavior our model accounts for the interdependence of physician input output and work leisure choices and includes an endogenous virtual wage for physician own time in the medical practice we find that solo practitioners respond to increases in marginal hourly earnings and nonpractice income by allocating less time to medical practice activities our results also suggest that fee reductions induce the substitution of physician own time for auxiliaries and the net effect of this adjustment is reduced patient loads and a decrease in supply from the existing stock of solo practitioners

transitory price changes and price limit rules evidence from the tokyo stock exchange we compare the volatility of 24 hour returns computed from the opening and closing prices of a diverse sample of tokyo stock exchange tse stocks we find that volatility at the open is greater than volatility at the close only for the most actively traded tse stocks daytime and overnight return covariances suggest that the volatility patterns are explained by the effect of implicit bid ask spreads at the open and partial price adjustment at the close both of which are related to the intensity of trading our results challenge the view that open to open returns are more volatile than close to close returns for stocks in general and are consistent with the hypothesis that tse price limit rules have a significant impact on the dynamics of security prices

are combination gas and electric utilities multiproduct natural monopolies gas and electric services are provided in some locations by a single firm in others by two firms the loss of competition inherent in single firm provision can be justified by the presence of both economies of scope and product specific economies of scale for each output in multiproduct production the estimation of a multiproduct hybrid translog cost function shows no evidence of such economies at the mean combination utility output vector copyright 1987 by mit press

banking deregulation and allocative efficiency in pakistan abstractthis article examines the impact of deregulation policies on allocative efficiency of banks in pakistan it investigates whether deregulation has impacted the pattern of allocative efficiency of banks and explores which bank ownership segment has been more responsive it uses data from 1991 to 2005 and explicitly models allocative inefficiency by using the translog shadow cost share system empirical results show that overregulation and imperfect market structure hampers the ability of banks to make competitive decisions we find evidence of allocative inefficiency leading to over utilization of labour and deposits vis a vis operating cost empirical results for time varying allocative efficiency show declining levels of allocative inefficiency for state owned and private banks in post reform period deregulation policies induce state owned banks to decrease over utilization of labour relative to deposits and operating cost while private banks succeed in using operating cost closer to optimal leve

testing efficiency hypotheses in joint production a parametric approach n recent years a great deal of research has been directed to the modelling and measurement of technical and allocative efficiency in production with few exceptions this research has been restricted to single product firms however recent developments in duality theory have facilitated the extension of this research to multi product firms the main purpose of this paper is to develop a model of the multiproduct firm in which the possibilities of both technical and allocative inefficiency are incorporated in an econometrically useful way the first model we develop includes a nonneutral2 type of technical inefficiency and three distinguishable types of allocative inefficiency output mix input mix and scale each type of inefficiency is costly to the firm in the sense that each causes a reduction in profit beneath the maximum value attainable under full efficiency the cost of each type of inefficiency depends on the magnitude of the inefficiency and the structure of the underlying production technology in the second model we develop technical inefficiency remains nonneutral but allocative inefficiency is not generally decomposable into output mix input mix and scale components however both technical and allocative inefficiency remain costly to the firm the cost of each type of inefficiency depending on its magnitude and the structure of the underlying production technology we model the technology of a competitive profit maximizing multi product firm with the dual profit function this enables us to use hotelling s lemma to generate a system of profit maximizing output supply and input demand equations these equations are then modified to allow for the possibility of technical and three types of allocative inefficiency a virtue of using the profit function to represent production technology is that it permits a straightforward comparison of maximum profit under full efficiency with actual profit and with the profit that would result from any combination of the four types of inefficiency this enables us to allocate the cost of inefficiency to each of four components our model of inefficiency is parametric and is embedded in a generalized leontief profit function although any flexible specification of the profit function can be used the model is developed in sections ii iv estimation of the model is considered in section v an empirical example designed to illustrate the workings of the model is discussed in section vi section vii concludes

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

the elasticity of scale and the shape of average costs different concepts of returns to scale the first which is most widely used for defining returns to scale is the relative increase in output as all input quantities are increased proportionally along a ray through the origin the second which is the more relevant concept for micro economic analysis is the increase in output relative to costs for variations along the expansion path where input prices are constant and costs are minimized at every output 2 as it turns out these two concepts yield equal measures for the elasticity of scale3 e at every minimum cost point in the input space however the change in e with output is generally different for the two concepts 4 since expansion paths do not coincide with rays unless the production function is homothetic 5 but it is the change of e along the expansion path and not along the raywhich determines the shape of the average cost curve ac and which is therefore relevant for the analysis of firms and industry behavior under competition 6 these relations are stated and analyzed below it is shown that assumptions made in the literature7 which are related to the behavior of e along rays or to the slope of the technically optimal surface where returns to scale are locally constant are irrelevantbeing neither necessary nor sufficient for implying classical u shaped average cost curves the following definitions and results are used here

convergence and divergence in british housing space abstractthe degree of convergence that exists among british house prices is an open question inferences vary with the method applied and periods considered using the rank of the cointegrating matrix among four decades of regional data two contiguous groups of regions are revealed these super regions have some common members through which price changes are transmitted from south to north with london found to be deviating from the south east neither it nor the uk are likely to be indicative of the regional series of the south of england

scale economies and inefficiency of u s dairy farms this study employs data drawn from the 2000 agricultural resource management survey a u s department of agriculture sponsored farmers survey the article estimates returns to scale relationships across dairy farms of different sizes and across different regions incorporating variables hypothesized to influence farm performance results point to significant scale economies in u s dairy farms and underscore the importance of taking account of inefficiency when estimating scale economies contrary to previous research the preferred cost function specification does not show a region of decreasing returns to scale this finding helps explain why the average size of dairy farms has been increasing

technological externalities and economies of vertical integration in the electric utility industry abstract this paper investigates economies of vertical integration of the electric utility industry focusing on the technological externality between the generation and transmission distribution stages for this purpose a shadow cost function of the symmetric generalized mcfadden form is estimated using panel data on the transmission distribution stage of nine japanese electric utility firms the results show that there exist the technological externality effects of generation facilities on the cost of the transmission distribution stage suggesting economies of vertical integration

allocative distortions technical progress and input demand in u s airlines 1970 1984 this paper generalizes a globally concave and flexible cost function to accommodate allocative distortions these distortions are introduced through shadow prices and are specified as functions of regressors that make distortion factors firm input and time specific the estimated model based on a panel of nineteen u s airlines observed during 1970 84 rejects the hypothesis of no allocative distortions increase in costs due to allocative distortions are calculated for each airline over the entire period the rate of technical progress and economies of scale are also estimated based on models with and without allocative distortions copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

employment of inputs by a rent seeking firm comment and extension to non minimum cost functions though not actually demonstrated at least it has hopefully been rendered probable above that by making use of fairly recent developments within applied production economics there is a good possibility of circumventing the problems from rent seeking pointed to by levy although even in this simple model the empirical model may not be a simple one but rather quite messy the model is still subject to the general criticism frequently advanced against the use of dual models though since full adjustment of inputs is assumed see e g johnston 1984 336 337 this assumption is however quite standard in applied work and treatment of the adjustment process is beyond the scope of the present note

a general index of technical change this paper outlines a procedure for estimating a general index of technical change within the context of a quite general production technology specifically when panel data are available for firms in an industry time specific dummies can be combined in a nonlinear estimation procedure to yield a general index of technical change that may be both nonneutral and scale augmenting this approach offers numerous advantages over the traditional time trend representation of technical change for example the general index can serve as the basis for analysis of the determinants of technical change results for a sample of 30 electric utilities over the period 1951 78 show that the productivity decline of the 1970s can be attributed primarily to sulphur oxide restrictions and secularly declining capacity utilization due to rapidly increasing peak load demands

the effects of lump sum subsidies on the structure of production and productivity in regulated industries abstract the theoretical model developed in this paper indicates that a lump sum subsidy granted to a monopolist facing a binding rate of return constraint will result in a higher level of capital employed and output produced furthermore production costs at any level of output will be higher compared to the pre subsidy situation the empirical results emanating from the application of the model to the bus transport sector indicate that lump sum subsidies have been factor biased and have led to higher costs as predicted by the model the average rate of productivity growth has been reduced by 0 60 percentage points per year as a direct result of the lump sum subsidy

deregulation ownership and productivity growth in the banking industry evidence from india this paper analyzes the relationship between deregulation and total factor productivity tfp growth in the indian banking industry using a generalized shadow cost function approach tfp growth is decomposed into a technological change a scale and a miscellaneous component a disaggregated panel data analysis using the population of public and private banks over 1985 96 that covers both pre and post deregulation periods indicates that a significant decline in regulatory distortions and the anticipated increase in tfp growth have not yet materialized following deregulation while private sector banks have improved their performance mainly due to the freedom to expand output public sector banks have not responded well to the deregulation measures

shephard s lemma and rate of return regulation abstract by counter example this paper shows that in general shephard s lemma cannot be used for the usual formulation of the rate of return regulated cost function a solution to the problem is supplied

privatisation and the efficiency of decentralised electricity generation some evidence from inter war britain the privatization of the electricity supply industry in england and wales has established a decentralized system of supply this paper considers the efficiency of the decentralized interwar electricity supply industry a generalized stochastic frontier cost function is specificed enabling the estimation of returns to scale and inefficiency at plant level these estimates are used in turn to examine the efficiency of stations selected by the central electricity board to supply the national grid the results imply that a decentralized system was not only feasible but that the selection procedure was sensitive to efficiency differences at plant level copyright 1992 by royal economic society

an examination of the effect of ownership on the relative efficiency of public and private water utilities the behavior of privately and publicly owned water utilities is examined by estimating a generalized variable cost function containing the regular characteristics of the neoclassical cost function without requiring that cost minimization subject to market prices be imposed as a maintained hypothesis assuming that unobserved shadow prices reflect the regulatory environment of the water industry tests for cost minimization are obtained by deriving shadow prices as functions of market prices the empirical results provide evidence that public water utilities are more efficient than private utilities on average but are more widely dispersed between best and worst practice

feasible estimation of firm specific allocative inefficiency through bayesian numerical methods both the theoretical and empirical literature on the estimation of allocative and technical inefficiency has grown enormously to minimize aggregation bias ideally one should estimate firm and input specific parameters describing allocative inefficiency however identifying these parameters has often proven difficult for a panel of chilean hydroelectric power plants we obtain a full set of such parameters using gibbs sampling which draws sequentially from conditional generalized method of moments gmm estimates obtained via instrumental variables estimation we find an economically significant range of firm specific efficiency estimates with differing degrees of precision the standard gmm approach estimates virtually no allocative inefficiency for industry wide parameters copyright 2009 john wiley sons ltd

technical and allocative inefficiencies and factor elasticities of substitution an analysis of energy waste in iran s manufacturing ignoring technical and allocative inefficiencies or embedding one of them alone in a system of input demands may result in biased elasticities we consider a comprehensive model including technical inefficiency in input and output forms and allocative inefficiency and apply it to panel data from iran s manufacturing sector the results show that the presence of both inefficiencies affects the computed elasticities of demand and substitution moreover in spite of current waste of energy in iran s manufacturing the elimination of environmental constraints will prompt the manufacturing firms to increase the utilization of energy relative to both capital and labor