New Economics Papers
on Efficiency and Productivity
Issue of 2007‒04‒21
sixteen papers chosen by

  1. Do Input Quality and Structural Productivity Estimates Drive Measured Differences in Firm Productivity? By Fox, Jeremy T.; Smeets, Valérie
  2. Environmental Efficiency Measurement with Translog Distance Functions: A Parametric Approach By Cuesta, Rafael A.; Knox Lovell, C.A.; Zofío, José Luis
  3. The Productivity Argument for Investing in Young Children By James J. Heckman; Dimitriy V. Masterov
  4. Efficiency in Managing the Environment and the Opportunity Cost of Pollution Abatement By Subhash C. Ray; Kankana Mukherjee
  5. Are Hospitals Seasonally Inefficient? Evidence from Washington State Hospitals By Daniel Friesner; Matthew McPherson; Robert Rosenman
  6. Source of output growth in small and medium scale enterprises in Malaysia By Jajri, Idris; Ismail, Rahmah
  7. Shifts and Twists in the Relative Productivity of Skilled Labor By Arnaud Dupuy; Philip S. Marey
  8. Capital Adequacy Ratios, Efficiency and Governance: a Comparison Between Islamic and Western Banks By Lucia Dalla Pellegrina
  9. Efficiency of Thai provincial public hospitals after the introduction of National Health Insurance Program By R. Amy Puenpatom; Robert Rosenman
  10. Efficiency in Public Research Centers: Evaluating the Spanish Food Technology Program By Jiménez-Sáez, Fernando; Zabala-Iturriagagoitia, Jon Mikel; Zofío, José Luis
  11. An Econometric Model of Wildfire Suppression Productivity By Jonathan Yoder; Mariam Lankoande
  12. Inferring the Latent Incidence of Inefficiency from DEA Estimates and Bayesian Priors By Daniel Friesner; Ron Mittelhammer; Robert Rosenmane
  13. Do Formula or Competitive Grant Funds Have Greater Impacts on State Agricultural Productivity? By Huffman, Wallace; Evenson, R. E.
  14. Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence From a Transition Economy By Dietrich Earnhart; Lubomir Lizal
  15. A Note on Allen-Uzawa Partial Elasticities of Substitution: The Case of the Translog Cost Function By Atanas Christev; Allen Featherstone
  16. Technology and the Demand for Skill: An Analysis of Within and Between Firm Differences By John M. Abowd; John Haltiwanger; Julia Lane; Kevin L. McKinney; Kristin Sandusky

  1. By: Fox, Jeremy T. (University of Chicago); Smeets, Valérie (Department of Economics, Aarhus School of Business)
    Abstract: Firms in the same industry can differ in measured total factor productivity (TFP) by multiples of 3. Griliches <p> (1957) suggests one explanation: the quality of inputs differs across firms. Labor inputs are traditionally <p> measured only as the number of workers. We investigate whether adjusting for the quality of labor inputs <p> substantially decreases measured TFP dispersion. We add labor market history variables such as experience <p> and firm and industry tenure, as well as general human capital measures such as schooling and sex. We also <p> investigate whether an innovative structural estimator for productivity due to Olley and Pakes (1996) substantially <p> decreases measured residual TFP. Combining labor quality and structural estimates of productivity, the <p> one standard deviation difference in residual TFPs in manufacturing drops from 0.70 to 0.67 multiples. Neither <p> the structural productivity measure nor detailed input quality measures explain the very large measured <p> residual TFP dispersion, despite statistically precise coefficient estimates
    Keywords: production function estimation; total factor productivity; input quality; structural estimates of productivity
    JEL: D24 L23 M11
    Date: 2007–02–01
  2. By: Cuesta, Rafael A. (Departamento de Economía, Universidad de Oviedo, E-33071, Oviedo, Spain.); Knox Lovell, C.A. (Department of Economics, Terry College of Business, University of Georgia, Athens, GA 30602, USA); Zofío, José Luis (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: We use a flexible parametric hyperbolic distance function to estimate environmental efficiency when some outputs are undesirable. Cuesta and Zofio (J. Prod. Analysis (2005), 31-48) introduced this distance function specification in conventional input-output space to estimate technical efficiency within a stochastic frontier context. We extend their approach to accommodate undesirable outputs and to estimate environmental efficiency within a stochastic frontier context. This provides a parametric counterpart to Färe et al.’s popular nonparametric environmental efficiency measures (Rev. Econ. Stat. 75 (1989), 90-98). The distance function model is applied to a panel of U.S. electricity generating units that produce marketed electricity and non-marketed SO2 emissions.
    Keywords: Undesirable outputs; parametric distance functions; stochastic frontier analysis; environmental efficiency
    JEL: C32 L95
    Date: 2007–03
  3. By: James J. Heckman (University of Chicago, American Bar Foundation, University College Dublin and IZA); Dimitriy V. Masterov (University of Michigan)
    Abstract: This paper presents a productivity argument for investing in disadvantaged young children. For such investment, there is no equity-efficiency tradeoff.
    Keywords: early childhood investment, noncognitive skills, cognitive skills
    JEL: H52 I28
    Date: 2007–04
  4. By: Subhash C. Ray (University of Connecticut); Kankana Mukherjee (Worcester Polytechnic Institute)
    Abstract: Using the directional distance function we study a cross section of 110 countries to examine the efficiency of management of the tradeoffs between pollution and income. The DEA model is reformulated to permit 'reverse disposability' of the bad output. Further, we interpret the optimal solution of the multiplier form of the DEA model as an iso-inefficiency line. This permits us to measure the shadow cost of the bad output for a country that is in the interior, rather than on the frontier of the production possibilities set. We also compare the relative environmental performance of countries in terms of emission intensity adjusted for technical efficiency. Only 10% of the countries are found to be on the frontier. Also, there is considerable inter-country variation in the imputed opportunity cost of CO2 reduction. Further, differences in technical efficiency contribute substantially to differences in the observed levels of CO2 intensity.
    Keywords: Data Envelopment Analysis, directional distance function, pollution- income tradeoff, shadow price.
    Date: 2007–04
  5. By: Daniel Friesner; Matthew McPherson; Robert Rosenman (School of Economic Sciences, Washington State University)
    Abstract: Efficiency measurement has been one of the most extensively explored areas of health services research over the past two decades. Despite this attention, few studies have examined whether a provider’s efficiency varies on a monthly, quarterly or other, sub-annual basis. This paper presents an empirical study that looks for evidence of seasonal inefficiency. Using a quarterly panel of general, acute-care hospitals from Washington State, we find that hospital efficiency does vary over time; however, the nature of this dynamic inefficiency depends on the type of efficiency being measured. Our results suggest that technical and cost efficiency vary by quarter. Allocative and scale efficiency also vary on a quarterly basis, but only if the data are jointly disaggregated by quarter and another, firm-specific factor such as size or operating status. Thus, future research, corporate decisions and government policies designed to improve the efficiency of hospital care need to account for seasonal trends in hospital efficiency.
    Keywords: repeated auction; seasonality, efficiency, hospitals, data envelopment analysis
    JEL: I11 I18
    Date: 2006–02
  6. By: Jajri, Idris; Ismail, Rahmah
    Abstract: Small and medium scale enterprises (SMEs) play an important role in the Malaysian industrial development. SMEs comprise of more than 90 per cent of the total manufacturing establishments, contributing about 40 per cent of the total employments and 30 per cent of the total fixed assets in this sector. However, SMEs’ value added is very much lower than that of the large scale. A low productivity of physical inputs or factors efficiency may be attributed to low level of value added. In general the benefit gained from technological advancement and human resource development varies for different size and types of industry. Consequently, this leads to productivity differences of their physical inputs and quality of inputs. This paper aims to address this issue using data from the Manufacturing Industries Survey conducted by the Department of Statistics of Malaysia. The analysis will look at the source of output growth in different types of SMEs sub-industries.
    Keywords: Growth; total factor productivity; manufacturing sector
    JEL: O30
    Date: 2007–01
  7. By: Arnaud Dupuy (ROA, Maastricht University and IZA); Philip S. Marey (ROA, Maastricht University)
    Abstract: Skill-biased technical change is usually interpreted in terms of the efficiency parameters of skilled and unskilled labor. This implies that the relative productivity of skilled workers changes proportionally in all tasks. In contrast, we argue that technical changes also affect the curvature of the distribution of relative productivity. Building on Rosen’s (1978) tasks assignment model, this implies that not only the efficiency parameters of skilled and unskilled workers change, but also the elasticity of substitution between skill-types of labor. Using data for the United States between 1963 and 2002, we find significant empirical support for a decrease in the elasticity of substitution at the end of the 70s followed by an increase at the beginning of the 90s. This pattern of the elasticity of substitution has contributed to the labor productivity slowdown in the mid 70s through the 80s and to a speedup in the 90s.
    Keywords: assignment, SBTC, output growth, cointegration and change in regime
    JEL: J20 J31 O30 O40
    Date: 2007–03
  8. By: Lucia Dalla Pellegrina
    Abstract: The profit and loss sharing principle that is peculiar to Islamic finance reformulates the allocation of risk between stakeholders. Since in Islamic banks depositors are closer to stockholders in terms of residual claiming on profits, the relationship between capitalization and efficiency should in principle be weaker than in their Western counterparts. Results, obtained by means of a stochastic cost frontier analysis on samples of European-15 and Islamic banks during the period 1996-2002, show that the ratio of equity to deposits negatively affects inefficiency in both types of banks, but this effect is considerably undersized in Islamic banks as compared to European ones. This supports the reluctance that has accompained the proposal of capital adequacy ratios for Islamic banks in accordance to Basel Agreements.
    Keywords: Islamic Banks, capital, governance.
    JEL: G21 G32
    Date: 2007–04
  9. By: R. Amy Puenpatom; Robert Rosenman (School of Economic Sciences, Washington State University)
    Keywords: repeated auction; efficiency,insurance, health insurance
    JEL: I11 I18
    Date: 2006–02
  10. By: Jiménez-Sáez, Fernando (INGENIO (CSIC-UPV)-Universidad Politécnica de Valencia, Valencia, Spain); Zabala-Iturriagagoitia, Jon Mikel (INGENIO (CSIC-UPV)-Universidad Politécnica de Valencia, Valencia, Spain); Zofío, José Luis (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: We rely on efficiency analysis to evaluate the Spanish R&D public policy based on financial incentives, and investigate to what extent this instrument has been able to promote a multidimensional research output mix, contributing to the articulation of a successful Spanish Food Innovation System. Introducing the use of the generalized distance function within DEA techniques, we assess whether this policy has encouraged the creation, strengthening and promotion of efficient public research units, whose activities present a balanced and comprehensive production of complementary research outputs −personnel training, science and technology results, and socio-economic collaboration with the private sector. Characterizing the alternative ways in which the different research units have been participating in the Spanish Food Technology Program, and hence their role within the innovation system, we conclude that R&D policy efforts have not succeeded in orienting research units toward a balanced output research mix due to wrong incentives and the lack of a sustained budget that would enable the consolidation of emerging research units. Furthermore, we observe that the majority of research units channel their efforts toward achieving science-technology results related to publications and submitted patents, instead of increasing socio-economic results that would strengthen the articulation and efficiency of the innovation system.
    Keywords: Innovation System Management; Research Efficiency; Data Envelopment Analysis
    JEL: C61 D78
    Date: 2007–03
  11. By: Jonathan Yoder; Mariam Lankoande (School of Economic Sciences, Washington State University)
    Abstract: We estimate a model of suppression productivity for individual fires, where suppression productivity is measured in terms of the reduction in the estimated market value of wildfire losses. Estimation results show that at the margin, every dollar increase in suppression costs reduces resource damage by 12 cents, while each dollar invested in pre-suppression reduces suppression expenditures by 3.76 dollars. These results suggest that there is an over-allocation of fire management funds to suppression activities relative to prevention measures in terms of costeffectiveness. This paper provides an empirical basis for a widely used economic model of wildfire management that seeks to minimize the sum of suppression costs and economic losses from wildfires, the cost plus net value change model of fire suppression (C+NVC).
    Keywords: wildfire suppression
    Date: 2006–09
  12. By: Daniel Friesner; Ron Mittelhammer; Robert Rosenmane (School of Economic Sciences, Washington State University)
    Abstract: Data envelopment analysis (DEA) is among the most popular empirical tools for measuring cost and productive efficiency. Because DEA is a linear programming technique, establishing formal statistical properties for outcomes is difficult. We show that the incidence of inefficiency within a population of Decision Making Units (DMUs) is a latent variable, with DEA outcomes providing only noisy sample-based categorizations of inefficiency. We then use a Bayesian approach to infer an appropriate posterior distribution for the incidence of inefficient DMUs based on a random sample of DEA outcomes and a prior distribution on the incidence of inefficiency. The methodology applies to both finite and infinite populations, and to sampling DMUs with and without replacement, and accounts for the noise in the DEA characterization of inefficiency within a coherent Bayesian approach to the problem. The result is an appropriately up-scaled, noise-adjusted inference regarding the incidence of inefficiency in a population of DMUs.
    Keywords: repeated auction; Data Envelopment Analysis, latent inefficiency, Bayesian inference,Beta priors, posterior incidence of inefficiency
    JEL: C11
    Date: 2006–08
  13. By: Huffman, Wallace; Evenson, R. E.
    Abstract: This paper describes major external changes to the U.S. public agricultural research system over 1988-1999; describes the reactions of the public agricultural research system to the external changes, specifying the innovations that have occurred over the last decade; and draws conclusions about the present and future performance of the U.S. research system. The decade of the 1990s brought slow growth to public agricultural research funding. CSREES tried to stimulate greater interests in competitive grant programs. The states have generally resisted this move. A major asymmetry exists in the sharing of transactions costs associated with external peer-reviewed competitive grant programs. This is especially true when the average grant size is small and the average award rate is low.
    Date: 2007–04–17
  14. By: Dietrich Earnhart; Lubomir Lizal
    Abstract: This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.
    Keywords: Czech Republic, environmental protection, pollution, financial performance
    JEL: D21 G39 Q53
    Date: 2007–02–01
  15. By: Atanas Christev (CERT, Heriot-Watt University and IZA); Allen Featherstone (Kansas State University)
    Abstract: This note provides a useful property of the Allen-Uzawa partials for the translog cost function. It also suggests how the main results extend to any functional form with certain properties. The curvature of the Allen-Uzawa matrix is the same as the curvature of the Hessian matrix. Intuitively and empirically, the Allen-Uzawa partials allow for the verification of curvature properties.
    Keywords: elasticity of substitution, translog cost function, concavity
    JEL: C13 C52 D20
    Date: 2007–03
  16. By: John M. Abowd (Cornell University, U.S. Census Bureau, CREST, NBER and IZA); John Haltiwanger (University of Maryland, U.S. Census Bureau, NBER and IZA); Julia Lane (NORC, University of Chicago and IZA); Kevin L. McKinney (LEHD, U.S. Census Bureau); Kristin Sandusky (LEHD, U.S. Census Bureau)
    Abstract: We estimate the effects of technology investments on the demand for skilled workers using longitudinally integrated employer-employee data from the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics Program infrastructure files spanning two Economic Censuses (1992 and 1997). We estimate the distribution of human capital and its observable and unobservable components within each business for each year from 1992 to 1997. We measure technology using variables from the Annual Survey of Manufactures and the Business Expenditures Survey (services, wholesale and retail trade), both administered during the 1992 Economic Census. Static and partial adjustment models are fit. There is a strong positive empirical relationship between advanced technology and skill in a crosssectional analysis of businesses in both sectors. The more comprehensive measures of skill reveal that advanced technology interacts with each component of skill quite differently: firms that use advanced technology are more likely to use high-ability workers, but less likely to use high-experience workers. These results hold even when we control for unobservable heterogeneity by means of a selection correction and by using a partial adjustment specification.
    Keywords: technology, demand for skill, matched employer-employee data, older workers
    JEL: J21 J23 L23
    Date: 2007–03

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