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

primal and dual capacity utilization an application to productivity measurement in the u s automobile industry capacity utilization measures have traditionally been constructed as indexes of actual as compared to potential output this potential or capacity output y can be represented within an economic model of the firm as the tangency between the short and long run average cost curves economic theoretical measures of capacity utilization cu can then be characterized as y y where y is the realized level of output these quantity or primal cu measures allow for economic interpretation they provide explicit inference as to how changes in exogenous variables affect cu additional information for analyzing deviations from capacity production can be obtained by assessing the dual cost of the gap in this article the definitions and representations of primal output and dual cost cu measures are formalized within a dynamic model of a monopolistic firm as an illustration of this approach to characterizing cu measures a model is estimated for the u s automobile industry 1959 1980 and primal and dual cu

measuring the efficiency of european railways this paper is concerned with the definition and measurement of efficiency in a public body specifically railways the authors argue against commonly used measures such as profit and labour productivity in favour of a production possibility frontier approach physical measures of input and output are derived and applied using a variety of methodologies results from some of the most popular such as data envelopment analysis and corrected ordinary least squares using the translog function are shown to be potentially misleading two original approaches one using uniform efficiency distributions and the other applying bayesian state space techniques are developed and applied but these too are found to be potentially unreliable comparison with results from other authors finally lead to the conclusion that accurate measurement of efficiency is not possible although the research is able to indicate good and bad performers the final conclusion is that efficiency on the railway is a product primarily of go

more on moral hazard in organizations reply the paper by thomas hammond and gary miller is an insightful comment on the relevance of budget breaking incentive schemes to real world organizations they have made a valuable contribution in considering this line of research within a broader context nonetheless they have not established the invalidity of my theoretical arguments therefore my basic point still holds that is theoretically it is possible to show that a bonus penalty incentive scheme of the sort proposed by holmstrom is feasible despite the principal s incentive to cheat regardless all of this debate may beg the question since compensation arrangements observed in the real world are rarely of the bonus penalty type linear incentives are far more common and many compensation schemes do not appear to incorporate optimal incentives at this point we need more empirical research on the determinants of incentives in organizations in order to make further advances in this area a better understanding of the incentive mechanisms actually used in organizations is required

measuring noise in inventory models this paper has two purposes one is to assess different models of inventory behavior in terms of their ability to approximate the realized data we do this initially for the pure production smoothing model and then for a sequence of generalizations our analysis both performs specification tests as well as measures the deviations of the data from each null model through use of a noise ratio statistic a second purpose is to explore whether observed cost shocks in particular raw materials prices help explain inventory movements we find that the production smoothing model of inventories augmented by buffer stock motives stockout avoidance motives and observed cost shocks well approximates monthly data

comparing regional technical efficiency in uk manufacturing plants the case of northern ireland 1974 1995 this paper uses estimates based on the stochastic frontier production function approach applied to more than 200 four digit uk manufacturing industries covering the period 1974 95 it is shown that manufacturing plants in northern ireland on average operated at lower levels of technical efficiency when compared to their counterparts in other regions of the uk and especially plants located in south east england this lower level of efficiency in the province is analysed both at the aggregate level and the industry level at the industry level the province has fewer plants exhibiting the highest levels of efficiency within most industries and too few plants open and close to cleanse manufacturing of the worst plants and those plants that do open and close often do not have efficiency levels such as to bring about improvements to the aggregate efficiency level the major conclusion is that northern ireland needs to reduce the long tail of weaker plants that tend to drag down average efficiency one w

a note on capacity utilization and measurement of scale economies this article investigates the measurement of returns to scale rts via a cost function in the presence of quasi fixed inputs caves christensen and swanson ccs proposed estimation of a variable cost function and derived a formula for computing rts from it this article extends the ccs results by a investigating the bias that would result from erroneously using a total cost function for measuring rts b indicating that the ccs procedure for measuring scale economies in the presence of quasi fixed inputs is inconsistent for the case of nonhomothetic production technology and c proposing an alternative procedure that allows one to evaluate rts at long run equilibrium points even when firms in the sample are in disequilibrium the similarity between this proposed method and the temporary equilibrium approach for measuring productivity growth is noted as well the empirical results on rts are compared among the three alternative methods total cost ccs variable cost and proposed long run equil

measuring the convexity of the cost function abstract in this paper i argue that as might be expected the initial assumption made about the cost function will influence the empirical results obtained regarding the convexity i show that this expectation is supported empirically by estimating the parameters of two quadratic cost functions the first is that function which has been traditionally used in the literature the second is a simplified version of the quadratic cost function where the cost of changing the level of output is dropped since the evidence in the literature suggest that this variable has no significant effect on cost using physical product monthly data for 24 industries we find that the conclusion reached regarding the convexity of the cost function depends on the assumption we make regarding the cost function i further find that the simplified function is consistent with the observed behavior of production and sales while the traditional cost function is inconsistent with that behavior

decomposing technical change with panel data an application to the public sector the estimation of technical change in panel data models is considered using two competing models the time trend tt model and the general index gi model our measure of technical change in both models is based on the input requirement function technical

estimation of technical inefficiency in panel data models with firm and time specific effects abstract this paper uses a panel data model and develops methods to estimate production function parameters and technical inefficiency the model distinguishes technical inefficiency from firm and time specific effects determinants of technical inefficiency is introduced by allowing its mean to be a function of exogenous variables both random and fixed effects treatment of firm and time specific effects are considered in estimation

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

labour use efficiency in swedish social insurance offices this paper considers the estimation of frontier production functions in panel data models it proposes a multi stage method to obtain estimates of 1 the parameters of a flexible input requirement function and 2 technical inefficiency decomposed into time invariant firm specific time varying and the residual components the proposed method is used to analyse labour use efficiency of swedish local social insurance offices on the basis of a large panel of observations during the time period 1974 84 empirical results show 1 substantial variations in labour use efficiency among these offices with the mean efficiencies declining over time 2 presence of economies of scale thereby meaning that most of the offices were of suboptimal size

endogenous regional agricultural production technologies technical relationships between six productive factors for ten agricultural produvction regions in the continental united states are examined the applied methodology provides a departure from conventional production methodologies contained in the literature by allowing aggregate technical relationships to be endogenized within the economic system

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

moral hazard in work organizations a comment on gaynor eswaran and kotwal and holmstrom a key question in the economics of organization is whether it is possible to induce a group of employees to produce some quota of labor desired by the director of their organization holmstrom 1982 argued that it is possible to achieve the desired result via a simple incentive scheme the essence of the scheme is to pay the employees only if they reach the quota if they fail the director is allowed to take what they have produced and use it for his own compensation in response eswaran and kotwal 1984 pointed out that because the director s compensation is smaller if the employees succeed in reaching the quota than if they fail he has an incentive to bribe an employee to shirk thus guaranteeing that the quota is not reached the director in other words is subject to moral hazard in a recent issue of public choice gaynor 1989 criticized the eswaran kotwal argument by suggesting that it is possible to design incentive schemes which eliminate the director s moral hazard problem in this note we defend the eswaran kotwal argument and raise further questions about the assumptions upon which holmstrom s incentive scheme is based

estimating input mix efficiency in a parametric framework application to state level agricultural data for the united states this paper contributes to the productivity literature by demonstrating novel econometric methods to estimate input mix efficiency ime in a parametric framework input mix efficiency is defined as

the presence of moral hazard in budget breaking it is possible that a budget breaking incentive scheme may not solve the problem of moral hazard in team production due to an incentive for a principal to cheat on such an agreement this is a problem common to incentive schemes which result in an unbalanced budget which include among them processes designed to reveal demand for public goods this paper shows the conditions under which cheating is possible and designs a payment scheme for the principal which is free of any cheating incentive

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

timing decisions of new product preannouncement and launch with competition abstract we develop a game theoretic model to study the timing of new product preannouncement and launch under competition we derive firms optimal timing choices and conducted a numerical analysis to evaluate the role of various factors our analytical and numerical results showed that anticipated competitor s timing choices are the most significant factors a firm should not preannounce early unless the preannouncement is effective in creating pent up demands however the preannouncement and launch should be rushed if the quality or profit margin of the new product is high and postponed if the market share of the existing product is high the market leader should preannounce earlier in a simultaneous game than in a sequential game but the opposite for the market follower data collected from the microprocessor industry validated our model

production planning horizon production smoothing and convexity of the cost functions abstract one of the productions planning models economists have used for the past four decades is the production smoothing model the model s conclusion is simple if cost functions are convex under certain conditions firm s production plans may show smaller variability than the firm s sales this is a result of the first order condition for cost minimization over the production planning horizon in a 1986 paper blinder raised doubts regarding the ability of the production smoothing model to explain the observed data some researchers e g ramey journal of political economy 99 2 1991 306 explained the inconsistency between the theory and the data by providing evidence that the cost functions are non convex in this paper i point out that the shapes of the cost functions depend on the length of the time horizon under consideration it is possible that while short run cost functions are upward sloping long run cost functions may be downward sloping because the planning horizon for firms facing seasonal demand has been shown to be one seasonal cycle the short run cost function whose shape determines the firm s production plan over the horizon need to be estimated using single planning horizon data i e a single seasonal cycle researchers who use long time series data are in effect estimating long run cost functions the slopes of which may be non positive i show further that convexity of the production cost function is neither necessary nor sufficient condition for production smoothing to be an optimal plan

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

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

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

modelling technical and allocative inefficiency in a translog production function abstract this paper develops a method of estimating technical and allocative inefficiency for each firm using a translog production function based on expected profit maximization hypothesis the method uses the production function and the first order conditions as the basis of parameter estimation

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

the moral hazard of budget breaking it has recently been suggested in the agency literature that moral hazard in teams can be dealt with by introducing a third party who breaks the budget balancing constraint and that this facilitates the design of contracts that can sustain the pareto optimum as a perfect nash equilibrium this note offers an explanation for why the use of budget breaking schemes is not so widespread as that of active monitoring despite the fact that such schemes would save the resources expended on supervision the note demonstrates that allowing the budget to be broken introduces the potential for moral hazard on the part of the third party which could render the proposed equilibrium incredible

production smoothing evidence from physical product data we reconsider the paradox that the variance of production often exceeds the variance of shipments a result that casts doubt on the production smoothing model of inventory behavior most studies of production smoothing have analyzed two digit sic dollar value data from commerce department surveys in contrast this paper examines disaggregated physical product data and finds that production is smoother than shipments in about two thirds of the 38 industry or product groupings considered however doubts about the model persist most notably euler equation estimates of the model s cost parameters are usually imprecise and often do not have the signs postulated by production smoothing models

comparison of two empirical cost functions abstract in this paper we compare two hypotheses regarding the cost function that have been used in past studies of production smoothing the two hypotheses tested are not nested the comparison is done using two types of tests designed for non nested hypotheses the j test of davidson and mckinnon and the encompassing test each of the models was capable of explaining much of the observed monthly output variations in the twenty four industries studied yet the j test leads us to reject both models the results of the encompassing test however indicate that each of the models contributes significantly to the explanation of output variation after accounting for the contribution of the alternative model

a generalized production frontier approach for estimating determinants of inefficiency in u s dairy farms this article investigates farm level efficiency of u s dairy farmers by estimating their technical and allocative efficiency technical inefficiency is assumed to be composed of a deterministic component that is a function of some farm specific characteristics and a random component by doing this we extend the stochastic frontier methodology in which determinants of technicial inefficiency are explicitly introduced in the model given the inputs variations in efficiency of farms are then explained by both deterministic and random components of technical inefficiency the empirical results indicate that a levels of education of the farmer are important factors determining technical inefficiency and b large farms are more efficient technically than small and medium sized farms both technical and allocative inefficiency are found to decrease with increase in the level of education of the farmer

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

production frontiers and panel data an application to u s class 1 railroads in this article the appropriateness of inefficiency measures obtained directly from the production function as in schmidt and sickles 1984 is examined relative to those provided by a the cost function aproach b klein s approach and c the iterative sur technique efficiency rankings yielded by different methods are also compared and tested

inventories and short run output stabilization empirical studies of the role played by production smoothing in determining inventory behavior have accounted for the production smoothing effect by the introduction of seasonal dummy variables and or the change in output as additional variables in the inventory equation lovell 7 192 93 has reviewed the empirical results of the studies by johnston modigliani and sauerlender and mills and also reported the results of his own investigation of the production smoothing effect the results of these studies lend very weak support to the empirical usefulness of the hypothesis on the other hand ghali 4 149 57 has produced some evidence strongly supporting the role of production smoothing in this paper a simple model of inventory behavior is developed under the assumption that the cost functions facing the firm are quadratic the model includes both the production smoothing and the buffer stock motives for holding stocks of finished goods the model is applied to monthly data for six industries and to ten pooled time seriescross section samples on one of the industries the results lend strong support to the effect of production smoothing on inventory behavior in the concluding section it is shown that the flexible accelerator model of inventory behavior is a special case of the production smoothing model developed modigliani 10 a summary of the results reported in this paper was presented at the first international symposium on inventories hungarian academy of science budapest august 1980 i am indebted to a referee of this journal and to my colleagues edwin fujii and burnham campbell for valuable comments and suggestions

estimating the linear quadratic inventory model maximum likelihood versus generalized method of moments abstract we compare generalized method of moments gmm and maximum likelihood ml estimators of the parameters of a linear quadratic inventory model using nondurable manufacturing data and monte carlo simulations data based gmm estimates for five normalizations vary widely generally rejecting the model the ml estimate generally supports the model monte carlo experiments reveal that the gmm estimates are often biased apparently due to poor instruments statistically insignificant economically implausible and dynamically unstable the ml estimates are generally unbiased even in misspecified models statistically significant economically plausible and dynamically stable asymptotic standard errors for ml are 3 to 15 times smaller than for gmm

on the estimation of technical and allocative inefficiency using stochastic frontier functions the case of u s class 1 railroads in this paper the author considers specification and estimation of technical and allocative inefficiency in a cost minimizing framework using panel data some distinguishing features of the model are 1 the functional form of the production technology is flexible enough to allow elasticity to vary across firms 2 allocative inefficiency coming from managerial errors ou t of inertia ignorance etc are separated from random errors in optimization 3 the panel nature of the data allows the estimation of input and firm specific allocative inefficiency together with technical inefficiency and 4 subdivision of the sample period allows one to make efficiency comparisons of each firm over the subperiods and to check the stability of the parameter estimates copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

economic performance of us class 1 railroads a stochastic frontier approach in this paper we estimate technical and allocative inefficiency and cost thereof of 13 us class 1 railroads using stochastic frontier production methodology in a panel data framework in addition to passenger and freight services we included quality of these services in our analysis empirical results show that the cost of technical inefficiency varies quite substantially among the roads the most inefficient road is 29 91 above the cost frontier while technical inefficiency on an average increased cost by 16 23 on the contrary allocative inefficiency does not differ much among the roads increase in cost due to allocative inefficiency is in between 4 and 9 with a mean of around 7 thus while the roads are quite competitive and efficient in allocating their inputs there is substantial scope for some of them to improve their technical 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

parametric decomposition of output growth using a stochastic input distance function midmore peter karagiannis g tzouvelekas v parametric decomposition of output growth using a stochastic input distance function american journal of agricultural economics 2004 86 4 pp 1044 1057

the measurement of productive efficiency a reconsideration the purpose of this paper is to generalize the farrell indexes of productive efficiency to nonhomothetic production technologies and at the same time maintain the cost interpretation of the farrell measures since the generalized indexes rely heavily on recent developments in the estimation of frontier cost and production functions several frontier models are reviewed in addition to generalized indexes of technical allocative and overall productive efficiency a variety of single factor efficiency measures are discussed the applicability of the proposed efficiency measures is illustrated with a numerical example of electric power generation

efficiency estimation in a profit maximising model using flexible production function abstract this paper uses a flexible translog production function to estimate efficiency of 227 farms from west bengal india we consider estimation of technical and allocative inefficiencies using a profit maximising framework which accommodates both endogenous and exogenous inputs the maximum likelihood method of estimation developed in this paper is based on the production function and the first order conditions of profit maximisation farm specific technical and allocative inefficiencies are also estimated empirical results show that the mean level of technical efficiency is 75 46 while the best farm is 85 87 efficient technically so far as allocative efficiency is concerned the majority of the farms are found to be under users of the endogenous inputs viz fertiliser manure human and bullock labour

the determinants of efficiency and productivity in european railways this article evaluates the economic performance of european railways over the period 1972 to 1999 the cost structure of the railway industry is analysed using a stochastic frontier approach estimated within the framework of a translog cost system the results confirm that european railways experience significant cost increases due to inefficient behaviour in contrast to previous studies however the estimates indicate a much greater role for allocative rather than technical inefficiency overall inefficiencies can essentially be explained by the supply of excess capacity and by the over employment of labour inputs regarding productivity it appears to be technological progress and not levels of efficiency or scale economies that provide the most convincing explanation for variance in growth rates within the sample

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

technical efficiency of european railways a distance function approach this study has two principal objectives the first objective is to measure and compare the performance of european railways the second objective is to illustrate the usefulness of econometric distance functions in the analysis of production in multioutput industries where behavioural assumptions such as cost minimization or profit maximization are unlikely to be applicable using annual data on 17 railways companies during 1988 1993 multioutput distance functions are estimated using corrected ordinary least squares cols the resulting technical efficiency estimates range from 0 980 for the netherlands to 0 784 for italy with a mean of 0 863 the distance function results are also compared with those obtained from single output production functions where aggregate output measures are formed using either total revenue or a tornqvist index the results obtained indicate substantial differences in parameter estimates and technical efficiency rankings casting significant doubt upon the reliability of

the measurement and sources of technical inefficiency in the indonesian weaving industry production function models are estimated with a time series of cross section data on indonesian weaving establishments the sources of technical inefficiency are investigated three firm attributes are identified as being potentially related to firm efhciency tbey are firm ownership age and size the importance of these attributes as sources of inefficiency in the indonesian weaving industry is investigated and the implications of the find ings discussed

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

a firm specific analysis of economies of density in the u s railroad industry an understanding of the nature of costs of production is important in every regulated industry both for policy makers and firms policy makers may be interested in whether there are economies of scale in production and in whether there are technological aspects of an industry that will pose difficult problems if an industry is regulated regulators and firms may be interested in costs for ratemaking purposes and in decisions about the effects of introducing new services or discontinuing existing services historically most cost studies in regulated industries have used data drawn from a cross section of firms or from a combination of cross section and time

a comparative analysis of european railroads efficiency a cost frontier approach the paper analyses the issue of cost efficiency for eight main european railroads in a sample period of 17 years measures of technical and allocative efficiency are obtained from a stochastic cost frontier model with minimal cost described by a translog cost system in the model the cost of allocative inefficiency is estimated simultaneously from the shares errors whereas technical inefficiency is modelled by a half normal positive departure from the cost frontier results show a negligible effect of allocative inefficiency on firms costs whereas the cost of technical inefficiency appears to be significant

double inefficiency in optimally organized firms abstract the management of a single product monopoly sets the number of employees and the number of production teams which are to be established however it is well known that employees shirk in teams moreover there is yet another inefficiency which is caused through the management s adjustment to its uncertain environment the management will not choose the internal organization of the firm which minimizes costs because this would reduce the expected revenue or surplus if it manages a public firm public firms are more likely to choose a technology where cost inefficiency and shirking reinforce each other government price regulation fails to eliminate cost inefficiency

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

aggregation and testing of the production smoothing hypothesis this paper examines the aggregate implications of the production smoothing model the analysis indicates that aggregation can be a source of bias distorting tests of production smoothing based on the relative variance of production and sales it is shown that depending upon the relative variability of different types of market shocks firms face the aggregation bias can be so severe as to render the test of the production smoothing hypothesis invalid copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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