New Economics Papers
on Efficiency and Productivity
Issue of 2007‒06‒11
nineteen papers chosen by

  1. Decomposing Partial Factor Productivity in the Presence of Input-Specific Technical Inefficiency: A Self-Dual Stochastic Production Frontier Approac By Konstantinos Chatzimichael; Vangelis Tzouvelekas
  2. Measuring the Accountability of Advertising Expenses in the Presence of Sales Cost Inefficiency and Marketing Spillovers By Konstantinos Giannakas; Giannis Karagiannis; Vangelis Tzouvelekas
  3. Efficiency of Large Scale Manufacturing in Pakistan: A Production Frontier Approach By Tariq Mahmood; Ejaz Ghani; Musleh-ud Din
  4. Do Technology and Efficiency Differences determine Productivity? By Michael Koetter; Jaap Bos; Claire Economidou; James Kolari
  5. Innovation and the export-productivity link By Cassiman, Bruno; Golovko, Elena
  6. Measuring Technical Efficiency in the Stochastic Varying Coefficient Frontier Model By Giannis Karagiannis; Vangelis Tzouvelekas
  7. The impact of ICT on the growth of the service industries By Koson Sapprasert
  8. Total factor productivity estimation: A practical review By Ilke Van Beveren
  9. Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity By Jan De Loecker
  10. Intangible Investment in Japan: Measurement and Contribution to Economic Growth By FUKAO Kyoji; HAMAGATA Sumio; MIYAGAWA Tsutomu; TONOGI Konomi
  11. Determinants of Insurers' Performance in Risk Pooling, Risk Management, and Financial Intermediation Activities By Georges Dionne; Robert Gagné; Abdelhakim Nouira
  12. Are Those Who Bring Work Home Really Working Longer Hours? Implications for BLS Productivity Measures By Eldridge, Lucy P.; Pabilonia, Sabrina Wulff
  13. Variance analysis and linear contracts in agencies with distorted performance measures By J”rg Budde
  14. Industry Specialization, Diversity and the Efficiency of Regional Innovation Systems By Michael Fritsch; Viktor Slavtchev
  15. The Determinants of Mutual Fund Performance: A Cross-Country Study By Miguel A. Ferreira; António F. Miguel; Sofia Ramos
  16. Cross-country Analysis of Efficiency in OECD Health Care Sectors: Options for Research By Unto Häkkinen; Isabelle Joumard
  17. Understanding Production in the Performing Arts: A Production Function for German Public Theatres By Marta Zieba; Carol Newman
  18. Diversification and the banks’ risk-return-characteristics – evidence from loan portfolios of German banks By Behr, Andreas; Kamp, Andreas; Memmel, Christoph; Pfingsten, Andreas
  19. Foreign aid and export performance: a panel data analysis of developing countries By Jonathan Munemo; Subhayu Bandyopadhyay; Arabinda Basistha

  1. By: Konstantinos Chatzimichael (Dept of Economics, University of Crete, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: The present paper provides a theoretical framework for the decomposition of partial factor productivity in the presence of input-specific technical inefficiency. Based on Kuroda’s dual approach and using the theoretical foundations developed by Kopp, we decompose the growth rate of partial factor productivity into five sources, namely, changes in input-specific technical efficiency, substitution effect, technical change, the effect of scale economies and a homotheticity and input biased technological effect. The empirical model is based on a generalized self-dual Cobb-Douglas stochastic production frontier and on the methodological approach for measuring orthogonal input-specific technical efficiency suggested by Reinhard, Lovell and Thijssen. The model is applied to a panel data set of 723 cereal farms in Greece observed during the 1994-2003 cropping period obtained from FADN. The empirical results suggest that the labor productivity of cereal farms has been increased by 2.89 per cent annually. Technical change was found to be the main source of labor productivity (70.4%), while changes in technical efficiency also contributed significantly over the period analyzed (34.7%). On the other hand, substitution effect was found to affect negatively the rate of labor productivity (-14.2%).
    Keywords: partial factor productivity, stochastic production frontier, input-specific technical efficiency, Greek cereal farms
    JEL: C23 D24 J24 Q16
    Date: 2007–05–29
  2. By: Konstantinos Giannakas (Department of Agricultural Economics, University of Nebraska-Lincoln, USA); Giannis Karagiannis (Department of Economics, University of Macedonia, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: This paper develops a tractable theoretical framework for analyzing the substitutability between different advertising media, the extent of marketing spillovers in the market, the allocative efficiency of advertising spending, and the sources of total advertising productivity and sales growth. Maintaining the separability assumption between sales and production technology, the proposed methodology relies on cost-function decomposition of total factor productivity and the duality between input distance and cost functions. Utilizing a flexible Translog advertising distance function, the methodology is applied to the advertising activity of meat processing firms in Greece during the period 1983-1997. Scale economies in advertising expenses turn out to be an important source of total advertising productivity changes in the Greek meat processing sector. Advertising spillovers are significant contributing to total advertising productivity observed. Our analysis also indicates that improvements in (technical and allocative) advertising efficiency are more important means of enhancing firm returns than improvements in advertising techniques.
    Keywords: Advertising productivity, advertising direct distance function, media substitutability, processed meats industry, Greece
    JEL: D24 L25 L66 M37
    Date: 2007–05–29
  3. By: Tariq Mahmood (Pakistan Institute of Development Economics, Islamabad.); Ejaz Ghani (Pakistan Institute of Development Economics, Islamabad.); Musleh-ud Din (Pakistan Institute of Development Economics, Islamabad.)
    Abstract: This paper examines the efficiency of the large scale manufacturing sector of Pakistan using the stochastic production frontier approach. A stochastic production frontier is estimated for two periods—1995-96 and 2000-01—for 101 industries at the 5-digit PSIC. The results show that there has been some improvement in the efficiency of the large scale manufacturing sector, though the magnitude of improvement remains small. The results are mixed at the disaggregated level: whereas a majority of industrial groups have gained in terms of technical efficiency, some industries have shown deterioration in their efficiency levels.
    Keywords: Manufacturing Industries, Technical Efficiency, Stochastic Frontier Analysis, Data Envelopment Analysis
    JEL: D24 L6 O14 P27
    Date: 2007
  4. By: Michael Koetter; Jaap Bos; Claire Economidou; James Kolari
    Abstract: This paper investigates the forces driving output growth, namely technological, efficiency, and input changes, in 80 countries over the period 1970-2000. Relevant past studies typically assume that: (i) countries use resources efficiently, and (ii) the underlying production technology is the same for all countries. We address these issues by estimating a stochastic frontier model, which explicitly accounts for inefficiency, augmented with a latent class structure, which allows for production technologies to differ across groups of countries. Membership of these groups is estimated, rather than determined ex ante. Our results indicate the existence of three groups of countries. These groups differ significantly in terms of efficiency levels, technological change, and the development of capital and labor elasticities. However, a consistent finding across groups is that growth is driven mainly by factor accumulation (capital deepening).
    Keywords: Total Factor Productivity, Latent Class, Stochastic Frontier, Efficiency,Growth
    JEL: O47 O30 D24 G21 C24
    Date: 2007–05
  5. By: Cassiman, Bruno (IESE Business School); Golovko, Elena (IESE Business School)
    Abstract: In this paper, we explore the relationship between innovation activity, productivity, and exports, using a panel of Spanish manufacturing firms for 1990-1998. Our results -based on non-parametric tests- suggest that firm innovation status is critical in explaining the positive export-productivity association documented in prior research. For the sample of small innovating firms, we find no significant differences in productivity levels between exporters and non-exporters. Especially product innovation seems to explain this positive association between exports and productivity. For small non-innovating firms with the low and medium productivity levels, however, exporting firms continue to exhibit higher productivity than non-exporting firms.
    Keywords: Innovation; productivity; exports; industry dynamics;
    Date: 2007–04–05
  6. By: Giannis Karagiannis (Department of Economics, University of Macedonia, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: Due to the assumption that the best practice methods refer to each input separately instead of the whole set of inputs used by a firm, the benchmark technology as defined in the stochastic varying coefficient frontier model may be infeasible and theoretically improper whenever the maximum response coefficients are not coming from the same production unit. To overcome this problem we suggest an alternative procedure for measuring output-oriented and input-specific technical efficiency inspired from the maximum likelihood formulation of the non-neutral frontier model. The empirical results indicate that there are significant differences between the two procedures in terms of both the estimated efficiency scores (i.e., their means as well as of their frequency distribution) and the ranking of firms.
    Keywords: stochastic varying coefficient frontier model, input specific technical efficiency, olive farming, Greece
    JEL: C33 D21 D24
    Date: 2007–05–29
  7. By: Koson Sapprasert (Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: This paper explores the productive relationship between Information and Communication Technology (ICT) and services. The firm-level data is pursued to examine how ICT as a technological innovation combined with non-technological factors affect the firm’s economic performance. The study develops an argument that ICT is one of the key economic success factors in this techno-economic paradigm, particularly for service firms. The results demonstrate that the presence and intensity of ICT may be used to explain the higher growth experienced by the service industries in the last few decades. Both productivity and profitability growth are found to be significantly linked to the level of ICT intensity in service firms especially when undertaken jointly with non-technological innovations. The impact of ICT on the service sector is assessed in detail while manufacturing and other innovation activities serve as a benchmark.
    Keywords: Information and Communication Technology (ICT), Innovation in Services, Techno-economic paradigm, Productivity and Profitability Growth, Non-technological Innovation, Firm-level Analysis.
    JEL: O32
    Date: 2007–05
  8. By: Ilke Van Beveren
    Abstract: This paper aims to provide empirical researchers with an overview of the methodological issues that arise when estimating total factor productivity at the establishment level, as well as of the existing techniques designed to overcome them. Apart from the well-known simultaneity and selection bias; attention is given to methodological issues that have emerged more recently and that are related to the use of deflated values of inputs and outputs (as opposed to quantities) in estimating productivity at the firm level, as well as to the endogeneity of product choice. Using data on single-product firms active in the Belgian food and beverages sector, I illustrate the biases introduced in traditional TFP estimates and discuss the performance of a number of alternative estimators that have been proposed in the literature.
    Keywords: Total factor productivity; Imperfect competition; Endogenous product choice; Semiparametric estimator; Demand
    JEL: C13 C14 D24 D40
    Date: 2007
  9. By: Jan De Loecker
    Abstract: In this paper I analyze the productivity gains from trade liberalization in the Belgian textile industry. So far, empirical research has established a strong relationship between opening up to trade and productivity, relying almost entirely on deflated sales to proxy for output in the production function. The latter implies that the resulting productivity estimates still capture price and demand shocks which are most likely to be correlated with the change in the operating environment, which invalidate the evaluation of the welfare implications. In order to get at the true productivity gains I propose a simple methodology to estimate a production function controlling for unobserved prices by introducing an explicit demand system. I combine a unique data set containing matched plant-level and product-level information with detailed product-level quota protection information to recover estimates for productivity as well as parameters of the demand side (markups). I find that when correcting for unobserved prices and demand shocks, the estimated productivity gains from relaxing protection are only half (from 6 to only 3 percent) of those obtained with standard techniques.
    JEL: F13 L11
    Date: 2007–06
  10. By: FUKAO Kyoji; HAMAGATA Sumio; MIYAGAWA Tsutomu; TONOGI Konomi
    Abstract: The purpose of this paper is to measure intangible assets, to construct the capital stock of intangible assets, and to examine the contribution of intangible capital to economic growth in Japan. We follow the approach of Corrado, Hulten, and Sichel (2005, 2006) to measure intangible investment using the 2006 version of the Japan Industry Productivity Database. We find that the ratio of intangible investment to GDP in Japan has risen during the past 20 years and now stands at 7.5%. However, the ratios of intangible investment to GDP and of intangible to tangible investment in Japan are smaller than the values estimated for the US by Corrado et al. (2006). In addition, we find that the growth rate for intangible capital in Japan declined from the 1980s to the 1990s, which is in stark contrast to the high growth rate for intangible capital in the US in the late 1990s. Therefore, the contribution of intangible capital to total labor productivity growth in Japan is substantially smaller than in the US.
    Date: 2007–05
  11. By: Georges Dionne; Robert Gagné; Abdelhakim Nouira
    Abstract: Corporate finance theory predicts that firms' characteristics affect agency costs and hence their efficiency. Cummins et al. (2006) have proposed a cost function specification that measures separately insurer efficiency in handling risk pooling, risk management, and financial intermediation functions. We investigate the insurer characteristics that determine these efficiencies. Our empirical results show that mutuals outperform stock insurers in handling the three functions. Independent agents and high capitalization reduce the cost efficiency of risk pooling. Certain characteristics such as being a group of affiliated insurers, handling a higher volume of business in commercial lines, assuming more reinsurance or investing a higher proporotion of assets in bonds, do significantly increase insurers' efficiency in risk management and financial intermediation.
    Keywords: Risk pooling, risk management, financial intermediation, property-liability insurance, efficiency, agency costs
    JEL: D21 D23 G22
    Date: 2007
  12. By: Eldridge, Lucy P. (U.S. Bureau of Labor Statistics); Pabilonia, Sabrina Wulff (U.S. Bureau of Labor Statistics)
    Abstract: An ongoing debate surrounding BLS productivity data is that official labor productivity measures may be overstating productivity growth because of an increase in unmeasured hours worked outside the traditional workplace. This paper uses both the ATUS and May CPS Work Schedules and Work at Home Supplements to determine whether the number of hours worked by nonfarm business employees are underestimated and increasing over time due to unmeasured hours worked at home. We find that 8 - 9 percent of nonfarm business employees bring some work home from the workplace. In addition, those who bring work home report working longer hours than those who work exclusively in a workplace, resulting in a 0.8 – 1.1 percent understatement of measured hours worked. However, we find no conclusive evidence that productivity trends were biased over the 1997-2005 period due to work brought home from the workplace.
    Keywords: Work at Home, Productivity, Time Use
    JEL: J22 J24
    Date: 2007–05
  13. By: J”rg Budde (J”rg Budde, Department of Economics, University of Bonn, Adenauerallee 24-42, D-53113 Bonn; phone: +49-228-739247,
    Keywords: This paper investigates the role of variance analysis procedures in aligning objectives under the condition of distorted performance measurement. A riskneutral agency with linear contracts is analyzed, whereby the agent receives postcontract, pre-decision information on his productivity. If the performance measure is informative with respect to the agent?s marginal product concerning the principal?s objective, variance investigation can alleviate effort misallocation. These results carry over to a participative budgeting situation, but in this case the variance investigation procedures are less demanding.
    Date: 2007–04
  14. By: Michael Fritsch (University of Jena, School of Busniess and Economics, Max Planck Institute of Economics Jena, and Institute for Economic Research (DIW Berlin)); Viktor Slavtchev (University of Jena, School of Busniess and Economics)
    Abstract: Innovation processes are characterized by a pronounced division of labor between actors. Two types of externality may arise from such interactions. On the one hand, a close location of actors affiliated to the same industry may stimulate innovation (MAR externalities). On the other hand, new ideas may be born by the exchange of heterogeneous and complementary knowledge between actors, which belong to different industries (Jacobs' externalities). We test the impact of both MAR as well as Jacobs' externalities on innovative performance at the regional level. The results suggest an inverted u-shaped relationship between regional specialization in certain industries and innovative performance. Further key determinants of the regional innovative performance are private sector R&D and university-industry collaboration.
    Keywords: Innovation, technical efficiency, patents, agglomeration concentration, specialization, diversity, regional analysis.
    JEL: O31 O18 R12
    Date: 2007–06–05
  15. By: Miguel A. Ferreira (ISCTE Business School); António F. Miguel (ISCTE Business School); Sofia Ramos (ISCTE Business School)
    Abstract: This paper studies the performance of mutual funds around the world using a sample of 10,568 open-end actively managed equity funds from 19 countries between 1999 and 2005. Performance is measured using four alternative benchmark models, including an international version of the Cahart four-factor model. We regress abnormal performance on fund attributes such as age, size, fees, management structure, and management tenure. We also investigate whether country characteristics such as economic development, financial development, familiarity, and investor protection have additional explanatory power. The results show that large funds tend to perform better, which suggests the presence of significant economies of scale. When investing abroad, young funds are more able to obtain better performance. Performance is higher in funds with higher fees and that are managed by an individual manager with more experience. Mutual fund performance is better in countries with stronger legal institutions. Domestic funds located in developed countries, in particular with liquid stock markets, perform better. When investing abroad, familiarity and proximity enhances the performance of mutual funds.
    Keywords: Mutual funds, Performance, Fund attributes, Investor protection
    JEL: G15 G18 G23
    Date: 2006–11
  16. By: Unto Häkkinen; Isabelle Joumard
    Abstract: A key policy challenge in most OECD countries is to improve outcomes of the health care system while containing its costs. Benchmarking countries and identifying best practices to enhance public spending cost-effectiveness would, in this regard, be a useful exercise. This paper presents three main options for measuring effectiveness in the health care sector, discusses their pros and cons, including data availability and the possibility of whether these options would allow an analysis of how the institutional setting shapes spending effectiveness. <P>Comparer l'efficacité du secteur de la santé entre pays de l'OCDE : Options pour des travaux d'analyse <BR>Améliorer les résultats du système de santé tout en contenant ses coûts constitue un défi majeur de la politique économique dans la plupart des pays de l'OCDE. A cet égard, il serait particulièrement utile de pouvoir établir des comparaisons internationales et d'identifier les bonnes pratiques permettant d'améliorer le rapport résultats-coûts des dépenses publiques dans le secteur de la santé. Cet article présente trois grandes options pour mesurer l?efficacité dans le domaine de la santé, discute leurs avantages et inconvénients, notamment l'existence de données et la possibilité d'analyser à terme comment l'organisation institutionnelle affecte l'efficacité des dépenses.
    Keywords: health care, soins de santé, dépenses publiques, public spending, efficiency, efficacité, international benchmarking, comparaisons internationales
    JEL: H4 H51 I12
    Date: 2007–05–28
  17. By: Marta Zieba (Department of Economics, Trinity College Dublin); Carol Newman (Department of Economics, Trinity College Dublin)
    Abstract: The production structure for the performing arts is complicated by a number of factors making it difficult to estimate production technologies using a theoretical framework built for standard applications. However, understanding the nature of production and the way in which decisions are made by performing arts firms is particularly important given that many performing arts organisations are funded by government. Public funding of performing arts organisations is justified where socially desirable objectives are fulfilled. The public good component of output makes an important dimension of firms’ production decisions unobservable while the principal-agent problem reduces the incentive for firms to behave as cost minimisers. Both may result in an observed production structure which is uneconomic. In this paper we re-visit these issues using a new and extensive dataset for German public theatre. We aim to explore the extent to which the standard laws of production that apply in other sectors of the economy hold for performing arts institutions.
    Keywords: Production technology, Performing Arts, Nonprofit, Germany
    JEL: Z11 L32 L82 H44
    Date: 2007–06
  18. By: Behr, Andreas; Kamp, Andreas; Memmel, Christoph; Pfingsten, Andreas
    Abstract: Banks face a tradeoff between diversifying and focusing their loan portfolio. In this paper we carry out an empirical study for the German market to shed light on the question whether or not the benefits of risk sharing outweigh those of specialization. We use data from the Bundesbank’s quarterly borrowers statistic to determine the degree of diversification in the banks’ loan portfolios and combine this data with the banks’ balance sheets and audit reports. The unique database comprises data from all German banks during the period from 1993 to 2003. Our main results can be summarized in three statements: i) Specialized banks have a slightly higher return than diversified banks. ii) Specialized banks have lower relative loan loss provisions and lower shares of non-performing loans, iii) However, the standard deviations of the loan loss provision ratio and the non-performing loan ratio are lower for diversified banks.
    Keywords: bank lending, loan portfolio, portfolio theory, diversification, riskreturn analysis
    JEL: C23 C43 G11 G21
    Date: 2007
  19. By: Jonathan Munemo; Subhayu Bandyopadhyay; Arabinda Basistha
    Abstract: The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.
    Keywords: Developing countries - Economic conditions ; Exports
    Date: 2007

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