New Economics Papers
on Efficiency and Productivity
Issue of 2010‒05‒29
eleven papers chosen by

  1. How performance related pay affects productivity and employment. By Gielen, A. C.; Kerkhofs, M.; Ours, J.C. van
  3. Competition and Innovation: Together a Tricky Rollercoaster for Productivity. By Wiel, H.P. van der
  4. Unobserved Heterogeneity and International Benchmarking in Public Transport By Massimo Filippini; Mehdi Farsi; Marie-Anne Plagnet; Roxana Saplacan
  5. Are systems of innovation in Eastern Europe efficient?. By Kravtsova, V.; Radošević, S.
  6. Technology Choice and Incentives under Relative Performance Schemes By Matthias Kräkel; Anja Schöttner
  8. On the estimation of hospital cost: the approach By Kurup, Hari K K
  9. Performance Measurement and Incentive Plans By Antti Kauhanen; Sami Napari
  10. Recovery determinants of distressed banks: Regulators, market discipline, or the environment? By Kick, Thomas; Koetter, Michael; Poghosyan, Tigran
  11. Entry, Competitiveness and Exports: Evidence from Firm Level Data of Indian Manufacturing By Barua, Alokesh; Chakraborty, Debashis; Hariprasad , C. G.

  1. By: Gielen, A. C. (Tilburg University); Kerkhofs, M.; Ours, J.C. van (Tilburg University)
    Date: 2010
  2. By: Francesco Aiello; Paola Cardamone (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: This paper assesses the impact of R&D efforts on production in the North and Centre-South of Italy by using a panel of 1203 manufacturing firms over the period 1998-2003. The estimations are based on a nonlinear translog production function augmented by a measure of R&D spillovers. This measure combines the geographical distance between firms, the technological similarity within each pair of firms and the technical efficiency of each firm. The estimation method takes into account the endogeneity of regressors and the potential sample selection issue regarding firms’ decision to invest in R&D. Results show that the external stock of technology exerts a higher impact in the Centre-South of Italy. Finally, it emerges that R&D capital and R&D spillovers are substitutes for Northern firms and complements for Centre-Southern firms.
    Keywords: R&D spillovers, Italian economic divide, translog production function, technical efficiency.
    JEL: O33 L29 C23
    Date: 2010–05
  3. By: Wiel, H.P. van der (Tilburg University)
    Abstract: This PhD thesis deals with competition and innovation as drivers of productivity. According to literature, competition and innovation seem to be indivisibly connected to each other. Competition stimulates innovation by firms, and firms that innovate try to beat their competitors otherwise they will be swallowed by them. Competition as well as innovation are main drivers of productivity growth, but according to recent insights a trade-off may exist between these drivers. In fact, the relationship could look like an inverted U suggesting that competition is not always positively correlated with innovation. If competition is too intense, it has a negative effect on innovation (and productivity). This thesis has two main goals. First, it sheds more light on how to measure competition on product markets. In that respect, it elaborates on a new competition measure, the profit elasticity (PE). Chapter 2 extensively discusses this indicator and explicitly focus on what is meant by ‘competition’. Chapter 3 provides a guide for researchers how to measure PE in practice. The second goal of this thesis is to analyze the relationship between competition, innovation and productivity. As empirical evidence for this relationship is hardly available for the Netherlands, chapter 4 fills this gap by using Dutch (aggregate) firm level data. Chapter 5 examines the link between competition and product innovation at the firm level. It particularly analyzes the effect of product differentiation related to making products less close substitutes, and hence making markets less competitive.
    Date: 2010
  4. By: Massimo Filippini (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland); Mehdi Farsi (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland); Marie-Anne Plagnet (EDF, France); Roxana Saplacan (EDF, France)
    Abstract: This paper analyzes the cost structure of the French electricity distribution sector prior to the re-structuring reforms that have been initiated in 2005 and gradually implemented in the form of re-grouping certain activities across distribution units. The aim of this study is to assess the empirical evidence in support of these re-structuring measures. We explore the cost structure of the distribution units operating in France over the three year period. The data include 279 observations from 93 distribution units from 2003 to 2005, operating within the French electricity distribution network namely, Electricité Réseau Distribution France (ERDF). A Cobb-Douglas cost function is estimated using several specifications focusing on the analysis of the economies of scale and customer density. In order to account for the unobserved heterogeneity and its impacts on the economies of scale, we use a latent class specification. The results suggest that a majority of the distribution units can exploit statistically significant economies of scale. Further, the empirical analysis indicates that the unexploited economies of scale can vary considerably from one unit to another, not only because of variations in outputs but also because of the unobserved differences in networks and technological characteristics. In particular, the latent class approach can identify a group of distribution units that do not show any significant economies of scale. Further analysis suggests that such distributors are often located in metropolitan areas with high customer density.
    Date: 2010–05
  5. By: Kravtsova, V.; Radošević, S.
    Abstract: This paper explores the determinants of the productivity in the countries of Eastern Europe (EE) through the perspective of ‘narrow’ and ‘broad’ national systems of innovation (NSI). Based on panel econometrics it examines the extent to which systems in EE could be considered ‘(in)efficient’. Our results suggest that the EE countries have lower levels of productivity than might be expected given their research and development (R&D), innovation and production capabilities. The inefficiencies of ‘broad’ NSI are compounded by the inefficiencies of ‘narrow’ NSI in terms of generating numbers of science and technology publications and resident patents relative to R&D employment, compared to the rest of the world. Our results point to an important distinction between technology and production capability as the drivers of productivity improvements, and provide some policy implications.
    Date: 2009–11
  6. By: Matthias Kräkel; Anja Schöttner
    Abstract: We identify a new problem that may arise when heterogeneous workers are motivated by relative performance schemes: If workers’ abilities and the production technology are complements, the firm may prefer not to adopt a more advanced technology even though this technology would costlessly increase each worker’s productivity. Due to the complementarity between ability and technology, under technology adoption the productivity of a more able worker increases more strongly than the productivity of a less able colleague, thereby reducing the motivation of both workers to exert effort under a relative incentive scheme. We show that this adverse incentive effect is dominant and, consequently, keeps the firm from introducing a better production technology if talent uncertainty is sufficiently high and/or monitoring of workers is sufficiently precise.
    Keywords: complementarities; heterogeneous workers; production technology; tournament.
    JEL: D82 D86 J33 M52
    Date: 2010–05
  7. By: George Grantham
    Abstract: This paper argues that the conventional Malthusian account of pre-modern economies as constrained by diminishing returns resulting from a fixed land supplied is flawed because it does not recognize the importance of systematic indivisibilities in the production and distribution of farm produce that supported increasing return to additional inputs when the demand price of produce warranted them. Those indivisibilities locked in low-intensity farming practices in places where the demand for produce was diffuse. Most of pre-industrial Europe was in that situation, so average agricultural productivity was low. It was only in regions where urban concentrations of consumers aggregated demand to a level capable of inducing extra investment to exploit latent returns to scale in farming and transportation that the productivity of traditional mixed farming achieved its full potential.
    JEL: N00 N5 N7 Q1 R00 R1
    Date: 2010–05
  8. By: Kurup, Hari K K
    Abstract: There has been a huge interest during the last decade on modelling hospital cost. Now that there is a fare amount of clarity achieved in estimating cost functions of hospitals, it is time to take stock of the existing methodologies. This article through a brief review of the past studies attempts to bring to light the issues and methodology related to cost estimation in health care provision, keeping in mind the increasing interest towards health insurance in developing countries. These include problems related to output measurement, definition of input prices and definition of cost and its components. The focus of the review is more on the statistical cost functions than on the accounting based cost calculations.
    Keywords: hospital cost; cost estimation; multiproduct analysis
    JEL: I11 D24
    Date: 2010–05–18
  9. By: Antti Kauhanen; Sami Napari
    Abstract: This paper explores performance measurement in incentive plans. Based on theory, we argue that differences in the nature of jobs between blue- and white-collar employees lead to differences in incentive systems. We find that performance measurement for white-collar workers is broader in terms of the performance measures, the organizational level of performance measurement and the time horizon. The intensity of incentives is also stronger for white-collar employees. All of these findings are consistent with theory.
    Keywords: incentive pay, performance measurement, risk versus distortion trade-off, agency theory
    JEL: J33 M52 M54
    Date: 2010–05–18
  10. By: Kick, Thomas; Koetter, Michael; Poghosyan, Tigran
    Abstract: Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. Results seem not to be driven by regulators directing measures to particularly bad banks. That is, our results remain intact when we exclude banks that eventually exit the market due to restructuring mergers or moratoria. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery. --
    Keywords: Bank distress,capital support,regulation,recovery
    JEL: G28 C41 G21
    Date: 2010
  11. By: Barua, Alokesh; Chakraborty, Debashis; Hariprasad , C. G.
    Abstract: The industry and trade policy regimes in India have witnessed drastic changes since 1991. The dismantling of the industrial licensing system and thereby allowing free entry to and exit from the industry of firms in 1991 followed by the WTO induced trade liberalization leading to substantial reduction in tariffs and gradual softening of foreign investment regulations, particularly in the context of foreign direct investment since 1995, may have had significant impact on the state of competitiveness in India industries. In this paper an attempt has been made to evaluate the effects of trade and industrial policy changes on domestic competitiveness for select Indian industries during post-liberalization period. Though there exists a pool of empirical literature focusing on the state of competitiveness in India, the link between theoretical models underlying the empirical analysis is not often strong. Moreover, a section of the literature focuses on a combination of firm and industry data for drawing conclusions on firm behavior, which may not reflect the actual scenario. Given this background, the present paper attempts to provide a unified approach to examine the inter-relationships between entry and competitiveness within a consistent oligopolistic market framework. The empirical analysis of the present study, carried out on the basis of firm data for 14 sectors over 1990-2008, indicates that Indian industry have shown considerable changes over the last decade in terms of entry and competitiveness. An overall decline in concentration is witnessed between the two end points, which signify the importance of newer entry in the markets. The Price-Cost Margin however behaves differently for different sectors, which could be explained by the differing level of spillover of technical changes as a result of increased pressure of competition due to liberalization. Demand curve is generally found to be inelastic and declines over the period. The relationship between the size of the firms and their export volume turns out to be significantly positive.
    Keywords: Competitiveness; entry; industrial liberalization; trade liberalization
    JEL: F12 L50
    Date: 2010–05–15

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.