New Economics Papers
on Efficiency and Productivity
Issue of 2009‒10‒31
eighteen papers chosen by

  1. Performance measures for hierarchical organizations: Frontier analysis as a decision support tool By Aude Deville; Gary D. Ferrier; Hervé Leleu
  2. Efficiency of commercial banks in Bulgaria in the wake of EU accession By Kiril Tochkov; Nikolay Nenovsky
  3. Working Paper 09-09 - Alternative assessment of Belgian competitiveness By Chantal Kegels
  4. The Size and Service Offering Efficiencies of U.S. Hospitals. By Gary D. Ferrier; Hervé Leleu; James Moises; Vivian Valdmanis
  5. Measuring potential gains from specialization under non-convex technologies By Stéphane Blancard; Jean-Philippe Boussemart; Hervé Leleu
  6. Exact Relations between Four De?nitions of Productivity Indices and Indicators By Walter Briec; Kristiaan Kerstens; Nicolas Peypoch
  7. Technological Externalities and Economic Distance: A case of the Japanese automobile suppliers By TAKEDA Yosuke; UCHIDA Ichiro
  8. Revisiting the Determinants of Productivity Growth: What's new? By Boileau Loko; Mame Astou Diouf
  9. Is Productivity Linked To Wages? An Empirical Investigation in Malaysia By Goh, Soo Khoon
  10. Taylor-type rules and permanent shifts in productivity growth By William T. Gavin; Benjamin D. Keen; Michael R. Pakko
  11. The Political Economy of Productivity in Argentina: Interpretation and Illustration By Santiago Urbiztondo; Marcela Cristini; Cynthia Moskovitz; Sebastian Saiegh
  12. The Effect of Mergers and Acquisitions on Bank Performance in Egypt By Ahmed Mohamed Badreldin; Christian Kalhoefer
  13. Negative Data in DEA: A Simple Proportional Distance Function Approach By Kristiaan Kerstens; Ignace Van de Woestyne
  14. Is Newer Better? Penn World Table Revisions and Their Impact on Growth Estimates By Simon Johnson; William Larson; Chris Papageorgiou; Arvind Subramanian
  15. Are U.S. banks too large? By David C. Wheelock; Paul Wilson
  16. Accounting Discretion of Banks During a Financial Crisis By Luc Laeven; Harry Huizinga
  17. Tangency Capacity Notions Based upon the Pro?t and Cost Functions: A Non-Parametric Approach and a Comparison By Walter Briec; Kristiaan Kerstens; Diego Prior
  18. Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU By Kamerbeek, S.P.

  1. By: Aude Deville (LEG-FARGO, IAE, University of Bourgogne); Gary D. Ferrier (Walton College of Business, University of Arkansas); Hervé Leleu (LEM-CNRS (UMR 8179), IÉSEG School of Management)
    Abstract: We extend the standard frontier efficiency models (data envelopment analysis [DEA] and stochastic frontier analysis [SFA]) by allowing the “decision making units” (DMUs) whose performances are assessed to consist of two different levels within hierarchical organizations. Generally, the lower level unit is responsible for “operations;” while higher level units are assumed to make “strategic” decisions. Our primary contribution in this paper is thus to extend the use of frontier efficiency models to assess each level performance with relevant technical and allocative inefficiency measures. We illustrate our approach using DEA applied to data from a sample of 1,585 branches of a major French bank. A second contribution of the paper is to explicitly relate the efficiency to differences in the operating environments and the sizes of the bank branches. We believe that the simple, easy to implement method we introduce can serve as a valuable component of a “balanced score card” approach to benchmarking performance within hierarchical settings such as a banking network.
    JEL: M40 G21 C43
    Date: 2009–01
  2. By: Kiril Tochkov; Nikolay Nenovsky
    Abstract: The paper examines the efficiency of Bulgarian banks and its determinants over the period 1999- 2007. The levels of technical, allocative, and cost efficiency are first estimated using a nonparametric methodology and then regressed upon a number of bank-specific, institutional, and EU-related factors. The findings indicate that foreign banks were more efficient than domestic private banks, although the gap between them narrowed over time. State-owned banks ranked last on average but their privatization resulted in efficiency gains. Capitalization, liquid ity, and enterprise restructuring enhanced bank efficiency, while banking reforms had an adverse effect. The Treaty of Accession and EU membership were associated with significant efficiency improvements.
    Keywords: Transition economies; Banking sector; Efficiency; EU accession
    JEL: C14 G21 P20
    Date: 2009–10
  3. By: Chantal Kegels
    Abstract: This paper investigates graphically and econometrically the relationship between the relative positions, in terms of value added and relative prices, of Belgian manufacturing and market services in the European Union over 1970-2005. Relative prices are then decomposed into relative unit costs of factors of production. The analysis goes further by replacing relative unit labour cost with relative hourly wages and relative productivity. Finally, relative produc-tivity is replaced with relative capital deepening, relative labour composition effect and relative total factor productivity. All data are coming from the EUKLEMS database, March 2008 release.
    JEL: D24 F14 F20 P42
    Date: 2009–09–15
  4. By: Gary D. Ferrier (Walton College of Business, University of Arkansas); Hervé Leleu (LEM-CNRS (UMR 8179), IÉSEG School of Management); James Moises (Department of Emergency Medicine, Tulane University); Vivian Valdmanis (Department of Health Policy and Public Health, University of the Sciences in Philadelphia)
    Abstract: Hospital productivity has been a research topic for over two decades. We expand on this research to include measures of dis/economies of scope. By using the Free Coordination Hull (FCH) we are able to determine if hospitals in our sample can become more efficient if they provide more services (diseconomies of scope) or if two smaller hospitals with a reallocation of resources could become more efficient (economies of scope). Using data from the American Hospital Association for the years 2004-2007, we found variations among hospital markets (measured by the Core Based Statistical Area). We can determine whether dis/economies of scope exist by comparing the results from two linear programming problems. Focusing on four markets: Los Angeles, Philadelphia, Madison, WI, and New Orleans we found variations in how best these hospitals operating in these markets could change in order to increase both scale and scope efficiencies. This approach could be used by policy makers and managers in order to reduce costs by sharing, reducing, or expanding services in hospitals. Findings from a study such as this should aid reform programs by providing more information on the sources of hospital inefficiency.
    Keywords: Hospital, Efficiency, Economies of Scope, Hospital Markets
    Date: 2009–09
  5. By: Stéphane Blancard (ENESAD, UMR CESAER); Jean-Philippe Boussemart (University of Lille 3, LEM-CNRS (UMR 8179), IESEG School of Management); Hervé Leleu (LEM-CNRS (UMR 8179), IÉSEG School of Management)
    Abstract: In this paper, the Free Coordination Hull (FCH) approach developed by Green and Cook (2004) is combined with the Free Disposal Hull (FDH) model to detect potential gains from specialization. As a non-convex approach that allows both directly observed and summed decision making units (DMUs) to define the production technology, FCH is the relevant model for analyzing optimal reapportionment of activity among smaller and more specialized units. Indeed the convexity assumption in more traditional Data Envelopment Analysis (DEA) models precludes the possibility of detecting potential gains from specialization and can only reveal economies of scope. Therefore non-convex technologies are required to model diseconomies of scope. Based on FDH and FCH technologies, an overall efficiency measure is decomposed into three components, namely technical, size and specialization efficiencies. A database of French farms for the year 2003 is used for illustration. Results indicate that input inefficiency in the agricultural sector is driven mainly by lack of specialization, which represents about 50% of overall inefficiency.
    Keywords: specialization; free coordination hull; free disposal hull; agriculture
    Date: 2009–03
  6. By: Walter Briec (University of Perpignan, LAMPS); Kristiaan Kerstens (CNRS-LEM (UMR 8179), IÉSEG School of Management); Nicolas Peypoch (University of Perpignan, LAMPS)
    Abstract: Generalizing earlier approximation results, we establish exact relations between the Luenberger productivity indicator and the Malmquist productivity index under rather mild assumptions. Furthermore, we show that similar exact relations can be established between the Luenberger-Hicks-Moorsteen indicator and the Hicks-Moorsteen index.
    Keywords: Malmquist and Hicks-Moorsteen productivity indices, Luenberger and Luenberger Hicks-Moorsteen productivity indicators, approximate relation, exact relation
    JEL: C43 D24
    Date: 2009–04
  7. By: TAKEDA Yosuke; UCHIDA Ichiro
    Abstract: This paper is in the spirit of Marshall (1920), who raised the question of how economic distance affects a firm's productivity, focusing upon the role of idea sharing in relation to technological knowledge or information between firms. In order to quantify the degree of knowledge spillover or information sharing, we take the production function approach. Assuming core-periphery structure around automobile assemblies surrounded with auto-parts suppliers, we estimate plant-level production functions of the Japanese auto-parts suppliers, where productivity function depends upon the degree of information sharing measured by both geographic plant location and membership of technological cooperation associations. We take econometric issues of cross-sectional dependence of productivity and a simultaneity problem between inputs, applying methods to the standard OLS and GMM estimators. Positive technological externalities are seen in general and for independent plants, the fact which is robust to specifications of the production functions. Agglomeration effects are however rarely observed for relation-specific or cooperative plants. Some of them cost substantial negative externalities. Once a simultaneity problem is econometrically considered, instead of increasing returns, decreasing returns to scale emerge in cases of total materials. Agglomeration, if any, could be brought about not by increasing returns to scale, but by productivity spillover among suppliers proximate to automobile assemblies.
    Date: 2009–10
  8. By: Boileau Loko; Mame Astou Diouf
    Abstract: This paper studies the main determinants of total factor productivity (TFP) growth using principal component analysis and a dynamic panel data model and, through a case study, explores key areas where accelerated reforms in the Maghreb countries would boost TFP gains. The results reveal that reforms targeted at attracting foreign direct investment and rationalizing government size, shifting resources from low-productivity sectors to higher ones, and encouraging women to enter the work force, could accelerate TFP gains. Equally important are reforms aimed at strengthening human capital, increasing the volume of trade, and improving the business environment.
    Date: 2009–10–16
  9. By: Goh, Soo Khoon
    Abstract: This study investigates the relationship between real wages, labor productivity and unemployment in Malaysia at the macroeconomic level, using time-series econometric techniques. The study found a long-term equilibrium relationship between labor productivity and real wages, but that unemployment was apparently unconnected to the system. The results suggested that labor productivity is positively related to real wage in the long run. However, the increase in real wage exceeds the increase in labor productivity causing an increase in unit labor cost. In addition, the study found a positive causal flow from productivity to wages in the short-run supporting the marginal productivity theory.
    Keywords: real wages; productivity; Malaysia
    JEL: J30
    Date: 2009–08
  10. By: William T. Gavin; Benjamin D. Keen; Michael R. Pakko
    Abstract: This paper examines the impact of a permanent shock to the productivity growth rate in a New Keynesian model when the central bank does not immediately adjust its policy rule to that shock. Our results show that inflation and productivity growth are negatively correlated at business cycle frequencies when the central bank follows a Taylor-type policy rule that targets the output gap. We then demonstrate that inflation is more stable after a permanent productivity shock when monetary policy targets the output growth rate (not the output gap) or the price-level path (not the inflation rate). As for the welfare implications, both the output growth and price-level path rules generate much less volatility in output and inflation after a productivity shock than occurs with the Taylor rule.
    Keywords: Taylor's rule ; Productivity ; Inflation (Finance)
    Date: 2009
  11. By: Santiago Urbiztondo; Marcela Cristini; Cynthia Moskovitz; Sebastian Saiegh
    Abstract: This paper examines how the main characteristics of Argentina’s policymaking process (PMP) affect the productivity of its economy using the conceptual framework presented in Murillo, Scartascini and Tommasi (2008), Stein et al. (2008), Spiller and Tommasi (2007), and IDB (2005). First, the paper complements existing descriptions of the PMP by considering private agents and elaborating on structural characteristics possibly conducive to policymaking instability. Second, the paper illustrates the (negative) impact of Argentina’s lowquality and myopic PMP equilibrium on productivity by examining two key areas: provision of infrastructure services and agricultural policy. Finally, the paper explores the PMP at the local level of government (municipalities and local communities), finding that it mimics the flaws observed at the federal level.
    Keywords: Political economy, Productivity, Argentina
    JEL: P16 O43
    Date: 2009–10
  12. By: Ahmed Mohamed Badreldin (Faculty of Management Technology, The German University in Cairo); Christian Kalhoefer (Faculty of Business Administration, British University in Egypt)
    Abstract: Recent economic reforms in Egypt have significantly improved its macroeconomic indicators and financial sector. Banks have witnessed significant merger and acquisition activity as a result of these reforms in attempts to privatize and strengthen the banking sector. This study measures the performance of Egyptian banks that have undergone mergers or acquisitions during the period 2002-2007. This is done by calculating their return on equity using the Basic ROE Scheme in order to determine the degree of success of banking reforms in strengthening and consolidating the Egyptian banking sector. Our findings indicate that not all banks that have undergone deals of mergers or acquisitions have shown significant improvements in performance and return on equity when compared to their performance before the deals. Furthermore, extensive analysis was performed yielding the same results. It was concluded that mergers and acquisitions have not had a clear effect on the profitability of banks in the Egyptian banking sector. They were only found to have minor positive effects on the credit risk position. These findings do not support the current process of financial consolidation and banking reforms observed in Egypt, and provide weak evidence to support their constructive role in improved bank profitability and economic restructure.
    Keywords: Mergers and Acquisitions, Egypt, Banks, ROE, Performance Measurement, Reforms, ROA
    JEL: G21 G34
    Date: 2009–10
  13. By: Kristiaan Kerstens (CNRS-LEM (UMR 8179), IÉSEG School of Management); Ignace Van de Woestyne (Hogeschool Universiteit Brussel, Brussels, Belgium)
    Abstract: The need to adapt Data Development Analysis (DEA) and other frontier models in the context of negative data has been a rather neglected issue in the literature. Silva Portela, Thanassoulis, and Simpson (2004) proposed a variation on the directional distance function, a very general distance function that is dual to the profit function, to accomodate eventual negative data. In this contribution, we suggest a simple varaiation on the proportional distance funtion that can do the same job.
    Keywords: DEA, negative data, directional distance funtion
    Date: 2009–04
  14. By: Simon Johnson; William Larson; Chris Papageorgiou; Arvind Subramanian
    Abstract: This paper sheds light on two problems in the Penn World Table (PWT) GDP estimates. First, we show that these estimates vary substantially across different versions of the PWT despite being derived from very similar underlying data and using almost identical methodologies; that this variability is systematic; and that it is intrinsic to the methodology deployed by the PWT to estimate growth rates. Moreover, this variability matters for the cross-country growth literature. While growth studies that use low frequency data remain robust to data revisions, studies that use annual data are less robust. Second, the PWT methodology leads to GDP estimates that are not valued at purchasing power parity (PPP) prices. This is surprising because the raison d'être of the PWT is to adjust national estimates of GDP by valuing output at common international (purchasing power parity [PPP]) prices so that the resulting PPP-adjusted estimates of GDP are comparable across countries. We propose an approach to address these two problems of variability and valuation.
    JEL: O11 O40 O47
    Date: 2009–10
  15. By: David C. Wheelock; Paul Wilson
    Abstract: The substantial consolidation of the U.S. banking industry since the mid-1980s has brought a large increase in average (and median) bank size, which along with concerns about banks that are "too-big-to-fail," has led many analysts to wonder whether banks are "too large." This paper presents new estimates of ray-scale and expansion-path scale economies for U.S. banks based on nonparametric, local linear estimation of a model of bank costs. We employ a dimension-reduction technique to reduce estimation error, and bootstrap methods for inference. Our estimates indicate that as recently as 2006, most U.S. banks faced increasing returns to scale, suggesting that industry consolidation and increasing scale are likely to continue unless checked by government intervention.
    Keywords: Banks and banking ; Economies of scale ; Bank failures
    Date: 2009
  16. By: Luc Laeven; Harry Huizinga
    Abstract: This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.
    Keywords: Accounting , Asset management , Asset prices , Bank accounting , Bank regulations , Banks , Financial crisis , Housing prices , Investment , Liquidity management , Real estate prices ,
    Date: 2009–09–28
  17. By: Walter Briec (University of Perpignan, LAMPS); Kristiaan Kerstens (CNRS-LEM (UMR 8179), IÉSEG School of Management); Diego Prior (Universitat Autònoma de Barcelona, Spain)
    Abstract: This contribution provides a way to de?ne and compute a tangency notion of economic capacity based upon the relation between the various directional distance functions and the pro?t and cost functions using non-parametric technologies. A new result relating pro?t and cost function-based tangency capacity notions is established.
    Keywords: economic capacity, pro?t function, cost function, directional distance function, tangency
    JEL: C61 D24
    Date: 2009–04
  18. By: Kamerbeek, S.P.
    Abstract: In current horizontal merger policy in the US and the EU an explicit efficiency defense is allowed. On both sides of the Atlantic mergers are unconditionally approved if internal efficiencies are sufficient to reverse the mergers’ potential to harm consumers in the relevant market. Current merger policy is implicitly based on the assumption that rational managers will only propose privately profitable mergers. In this thesis I will show that the empirical evidence on merger performance suggests that this assumption can’t be sustained. Managers do propose uneconomic mergers, motivated by non-wealth maximizing behavior. To tackle this problem I argue that efficiencies should not only be used as an efficiency defense, but efficiencies should work both ways. To avoid type I and type II errors the competition authorities in the US and the EU should undertake a sequential efficiency test in their assessment of specific mergers.
    Keywords: Merger; competition policy; efficiencies; efficiency defence; merger performance; rational manager
    JEL: K0 K21 L4
    Date: 2009–07–01

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