New Economics Papers
on Efficiency and Productivity
Issue of 2006‒09‒11
seven papers chosen by

  1. The Dynamics of Plant-Level Productivity in U.S. Manufacturing By Arpad Abraham; Kirk White
  2. The Residual: On Monitoring and Benchmarking Firms, Industries, and Economies with respect to Productivity By Balk, B.M.
  3. The regulation of entry and aggregate productivity By Markus Poschke
  4. Efficiency Measurement and Regulation in U.S. Telecommunications: A Robustness Analysis By Marcelo Resende
  5. Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices By Ali Hortacsu; Chad Syverson
  6. Identification and Nonparametric Estimation of a Transformed Additively Separable Model By David Jacho-Chavez; Arthur Lewbel; Oliver Linton

  1. By: Arpad Abraham; Kirk White
    Abstract: Using a unique database that covers the entire U.S. manufacturing sector from 1976 until 1999, we estimate plant-level total factor productivity for a large number of plants. We characterize time series properties of plant-level idiosyncratic shocks to productivity, taking into account aggregate manufacturing-sector shocks and industry-level shocks. Plant-level heterogeneity and shocks are a key determinant of the cross-sectional variations in output. We compare the persistence and volatility of the idiosyncratic plant-level shocks to those of aggregate productivity shocks estimated from aggregate data. We find that the persistence of plant level shocks is surprisingly low-we estimate an average autocorrelation of the plantspecific productivity shock of only 0.37 to 0.41 on an annual basis. Finally, we find that estimates of the persistence of productivity shocks from aggregate data have a large upward bias. Estimates of the persistence of productivity shocks in the same data aggregated to the industry level produce autocorrelation estimates ranging from 0.80 to 0.91 on an annual basis. The results are robust to the inclusion of various measures of lumpiness in investment and job flows, different weighting methods, and different measures of the plants’ capital stocks.
    Keywords: productivity, manufacturing, microdata
    JEL: D24 L6 O47
    Date: 2006–07
  2. By: Balk, B.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Productivity is an important component of profitability, and therefore an important variable for monitoring and benchmarking exercises. This paper discusses the necessary accounting model as well as the various measurement problems one gets involved in. By virtue of its structural features, this model is applicable to individual firms and aggregates such as industries or economies.Though the measurement of productivity change and productivity differences is important, more important is their explanation. Thus firstly, this paper reviews recent results relating to the decomposition of aggregate productivity change into components due to firm dynamics and intra-firm productivity change. All these results were obtained by studying longitudinal enterprise microdata sets. Secondly, this paper reviews a number of methods for decomposing productivity change and productivity differences, whether at the individual firm level or at aggregate level, into partial measures relating to technological change and efficiency change. The combination of both research strategies seems to be a promising undertaking.
    Keywords: producer behaviour;profitability;Total Factor Productivity;decomposition;firm level data;index number theory;
    Date: 2001–11–09
  3. By: Markus Poschke
    Abstract: The aim of this paper is to contribute to explaining differences in aggregate productivity between similar, industrialized countries such as the US and European Union (EU) member states. By introducing shifts in administrative entry cost and a firm technology adoption decision in a model of heterogeneous firms close to Hopenhayn (1992), it matches the following facts: higher entry cost is associated with (1) both lower labor and total factor productivity, (2) more capital-intensive production, and (3) lower firm turnover. Compared to previous studies of reallocation intensity and aggregate productivity, endogenizing capital intensity through technology choice leads to stronger results; higher equilibrium capital intensity acts as an entry barrier to new firms, and protects low-productivity incumbents. Notably, the very small differences in the administrative cost of entry as documented by Djankov, La Porta, Lopez-de-Silanes and Shleifer (2002) suffice to explain 10 to 20% of differences in TFP and the capital-output ratio between Europe and the US. To obtain this, both heterogeneity of firms and allowing for technology choice are crucial.
    Keywords: growth theory, aggregate productivity, technology adoption, firm dynamics, entry and exit, reallocation, selection, regulation of entry
    JEL: E22 G38 L11 L16 O33 O40
    Date: 2006
  4. By: Marcelo Resende
    Abstract: The paper investigates the robustness of different efficiency measures that can support the implementation of diverse forms of incentive regulation in the context of U.S. telecommunications. Comparisons, in terms of an output orientation, are considered for efficiency scores obtained from Data Envelopment Analysis (DEA), distance function (with corrected ordinary least squares and a random effects model) and distance function embedded in a stochastic frontier framework (with time invariant, time varying efficiencies or with inefficiency effects). Similarly to the previous empirical literature, one finds, in most cases, only a moderate consistency across the different approaches. In fact, the different spectrum of techniques imposed varied degrees of structure in the error term and indicated non-negligible discrepancies across the different measurement approaches in terms of the ranking structure, degree of persistence and best and worst practices patterns.
    Keywords: efficiency measurement, yardstick regulation
    JEL: D29 L59 L96
    Date: 2006
  5. By: Ali Hortacsu; Chad Syverson
    Abstract: This paper looks at the reasons for and results of vertical integration, with specific regard to its possible effects on market power as proposed in the theoretical literature on foreclosure. It uses a rich data set on producers in the cement and ready-mixed concrete industries over a 34- year period to perform a detailed case study. There is little evidence that foreclosure effects are quantitatively important in these industries. Instead, prices fall, quantities rise, and entry rates remain unchanged when markets become more integrated. We suggest an alternative mechanism that is consistent with these patterns and provide additional evidence in support of it: namely, that higher productivity producers are more likely to vertically integrate, and as has been documented elsewhere, are also larger, more likely to grow and survive, and charge lower prices. We explore possible sources of vertically integrated producers’ productivity advantage and find that the advantage is tied to firm size, possibly in part through improved logistics coordination, but not to several other possible explanations.
    Date: 2006–07
  6. By: David Jacho-Chavez (Indiana University); Arthur Lewbel (Boston College); Oliver Linton (London School of Economics)
    Abstract: Let r(x,z) be a function that, along with its derivatives, can be consistently estimated nonparametrically. This paper discusses identification and consistent estimation of the unknown functions H, M, G and F, where r(x, z) = H[M (x, z)] and M(x,z) = G(x) + F(z). An estimation algorithm is proposed for each of the model's unknown components when r(x, z) represents a conditional mean function. The resulting estimators use marginal integration, and are shown to have a limiting Normal distribution with a faster rate of convergence than unrestricted nonparametric alternatives. Their small sample performance is studied in a Monte Carlo experiment. We empirically apply our results to nonparametrically estimate and test generalized homothetic production functions in four industries within the Chinese economy.
    Keywords: Partly separable models; Nonparametric regression; Dimension reduction; Generalized homothetic function; Production function.
    JEL: C13 C14 C21 D24
    Date: 2006–09–04
  7. By: Manuel Arellano; Jinyong Hahn (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: The purpose of this paper is to review recently development methods of estimation of nonlinear fixed effects panel data models with reduced bias properties. We begin by describing fixed effects estimators and the incidental parameters problem. Next the explain how to construct analytical bias correction of estimators, followed by bias correction of estimators, followed by bias correction of the moment equation, and bias corrections for the concentrated likelihood. We then turn to discuss other approaches leading to bias correction based on orthogonalization and their extensions. The remaining sections consider quasi maximum likelihood estimation for dynamic models, the estimation of marginal effects, and automatic methods based on simulation.
    Keywords: Asymptotic corrections, bias reduction, fixed effects, modifies likelihood, nonlinear models, panel data, simulation methods.
    JEL: C23
    Date: 2005–10

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