New Economics Papers
on Efficiency and Productivity
Issue of 2012‒11‒11
fifteen papers chosen by

  1. The scale of hospital production in different settings: One size does not fit all By Mette Asmild; Bruce Hollingsworth; Stephen Birch
  3. Why did agricultural labour productivity not converge in Europe from 1950 to 2005? By Miguel Martín-Retorillo; Vincente Pinilla
  4. Do efficiency scores depend on input mix? A statistical test and empirical illustration By Mette Asmild; Jens Leth Hougaard; Dorte Kronborg
  5. Do Subsidies Enhance or Erode the Cost Efficiency of Microfinance? Evidence from MFI Worldwide Micro Data By Mieno, Fumiharu; Kai, Hisako
  6. On the Identification of Production Functions: How Heterogeneous is Productivity? By Salvador Navarro; David Rivers; Amit Gandhi
  7. Analysing the effectiveness of public service producers with endogenous resourcing By David J. Mayston
  8. Are high labour costs destroying the competitiveness of Danish dairy farmers? Evidence from an international benchmarking analysis By Mette Asmild; Kurt Nielsen; Peter Bogetoft
  9. Determinants of the interest rate pass-through of banks: Evidence from German loan products By Schlüter, Tobias; Busch, Ramona; Hartmann-Wendels, Thomas; Sievers, Sönke
  10. The Role of Land Certification in Reducing Gender Gaps in Productivity in Rural Ethiopia By Bezabih, Mintewab; Holden, Stein; Mannberg, Andrea
  11. Public Policy and Resource Allocation: Evidence from Firms in OECD Countries By Dan Andrews; Federico Cingano
  12. Reverse Share-Tenancy and Marshallian Inefficiency: Bargaining Power of Landowners and the Sharecroppers’ Productivity By Ghebru, Hosaena H.; Holden, Stein T.
  13. Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function By Yazid Dissou; Lilia Karnizova; Qian Sun
  14. The Unequal Effects of Financial Development on Firms' Growth in India By Maria Bas; Antoine Berthou
  15. The Influence of BMI, Obesity and Overweight on Medical Costs: A Panel Data Approach By Toni Mora; Joan Gil; Antoni Sicras-Mainar

  1. By: Mette Asmild (Institute of Food and Resource Economics, University of Copenhagen); Bruce Hollingsworth (Division of Health Research, Lancaster University, UK); Stephen Birch (Centre for Health Economics and Policy Analysis, McMaster University, Canada)
    Abstract: This paper analyses the productive efficiency of 141 public hospitals from 1998-2004 in two Canadian provinces; one a small province with a few small cities and a generally more rural population and the other a large province that is more urban in nature, with a population who mainly live in large cities. The relative efficiencies of the hospitals, the changes in productivity during this time period, and the relationship between efficiency and the size or scale of the hospitals are investigated using data envelopment analysis. The models for the production of health care use case mix adjusted hospital discharges as the output, and nursing hours as inputs. We find clear differences between the two provinces. Making use of ‘own’ and ‘meta’ technical efficiency frontiers, we demonstrate that efficient units in the larger and more urban province are larger than non-efficient units in that province. However, efficient hospitals in the smaller and more rural province are smaller than non-efficient hospitals in that province. Overall, efficient hospitals in the larger more urban province are larger than efficient hospitals in the smaller more rural province. This has interesting policy implications - different hospitals may have different optimal sizes, or different efficient modes of operation, depending on location, the population they serve, and the policies their respective provincial governments wish to implement. In addition, there are lessons to be learned by comparing the hospitals across the two provinces, since the inefficient hospitals in the small rural province predominantly use hospitals from the large urban province as benchmarks, such that substantially larger improvement potential can be identified by inter-provincial rather than intra-provincial benchmarking analysis.
    Keywords: Data Envelopment Analysis (DEA), Scale, Efficiency, Hospitals, Provinces
    Date: 2012
  2. By: Paola Cardamone; Valeria Pupo; Fernanda Ricotta (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: This paper analyses the influence of universities on Italian firm TFP at the provincial level separating the effects of main university functions, such as the creation of knowledge through research, the creation of human capital through teaching and the technology transfer. Overall, results show that the presence of the universities does not seem to affect firm productivity. If, instead, we focus only on the most developed and productive area of the country, the North of Italy, the results change: we find that university activities significantly improve firm performance.
    Keywords: University, R&D activities, Total Factor Productivity
    JEL: O30 D24 C21
    Date: 2012–10
  3. By: Miguel Martín-Retorillo (Universidad de Zaragoza); Vincente Pinilla (Universidad de Zaragoza)
    Abstract: This paper offers a long-term analysis of agricultural labour productivity differences in Europe using econometric techniques. The results show the crucial importance of the land/labour ratio. The continuous exit of manpower from the sector, coupled with increased use of productive factors originating in other sectors of the economy, caused the efficiency of agricultural workers to rise. The different relative importance of these processes across countries largely explains why labour productivity did not converge. In turn, institutions have apparently conditioned differences in productivity, as a direct and inverse relation is detected between membership of the EU and the Communist block and the productivity of agricultural labour.
    Keywords: Agricultural labour productivity, European agriculture 20th century, European economic development
    JEL: N50 N54 O13 Q10
    Date: 2012–10
  4. By: Mette Asmild (Warwick Business School, University of Warwick); Jens Leth Hougaard (Institute of Food and Resource Economics, University of Copenhagen); Dorte Kronborg (Department of Finance, Copenhagen Business School)
    Abstract: In this paper we examine the possibility of using the standard Kruskal-Wallis rank test in order to evaluate whether the distribution of efficiency scores resulting from Data Envelopment Analysis (DEA) is independent of the input (or output) mix. Recently, a general data generating process (DGP) suiting the DEA methodology has been formulated and some asymptotic properties of the DEA estimators have been established. In line with this generally accepted DGP, we formulate a conditional test for the assumption of mix independence. Since the DEA frontier is estimated, many standard assumptions for evaluating the test statistic are violated. Therefore, we propose to explore its statistical properties by the use of simulation studies. The simulations are performed conditional on the observed input mixes. The method, as it is shown here, is applicable when comparing distributions of efficiency scores in two or more groups in models with multiple inputs and one output with constant returns to scale. The approach is illustrated in an empirical case of demolition projects where we reject the assumption of mix independence. This means that it, in this case, is not meaningful to perform a complete ranking of the projects based on their efficiency scores. Thus the example illustrates how common practice can be inappropriate.
    Keywords: Data Envelopment Analysis (DEA), homogeneous efficiencies, small sample properties, Kruskal-Wallis, ranking, demolition projects
    Date: 2012
  5. By: Mieno, Fumiharu; Kai, Hisako
    Abstract: A recent issue in the microfinance literature is whether microfinance institutions (MFIs) are financially sustainable without a subsidy as a prerequisite for competition policy or commercialization processes. Although some recent studies have proposed relevant theoretical frameworks, empirical analyses are scarce. Using financial data for MFIs across a panel of 1791 observations for 2003-2006, we estimate a cost function for the MFIs and a measure of inefficiency using the stochastic frontier cost approach, and then examine the effects of subsidies, operating age and other possible factors as determinants of efficiency., We find that subsidies are generally not an impediment to cost efficiency; instead, they are generally utilized to improve cost efficiency. We also find that the effect of a subsidy on efficiency is larger for younger MFIs, suggesting that subsidies for these institutions are effectively utilized for intensifying initial technology investment or human resource development. The findings are consistent with the arguments that stress the importance of subsidies for the initial stage of development of MFIs, and partially contradictory to the claims that the subsidies generally erode MFIs’ financial sustainability.
    Keywords: microfinance, financial institutions, frontier cost function approach
    JEL: G21 O16 R51
    Date: 2012–03
  6. By: Salvador Navarro (University of Western Ontario); David Rivers (University of Western Ontario); Amit Gandhi (University of Wisconsin)
    Abstract: The estimation of production functions suffers from an unresolved identification problem caused by flexible inputs, such as intermediate inputs. We develop an identification strategy for production functions based on a transformation of the firm's short-run first order condition that solves the problem for both gross output and valueadded production functions. We apply our approach to plant-level data from Colombia and Chile, and find that a gross output production function implies fundamentally different patterns of productivity heterogeneity than a value-added specification. This finding is consistent with our analysis of the bias induced by the use of value-added.
    Date: 2012
  7. By: David J. Mayston
    Abstract: One of the main motivations for productivity analysis is to assess the scope for overall improvements in the output possibilities of individual producers. At times of fiscal and government budgetary pressures, attention focuses particularly on the output potential of public service providers and its relationship to the inputs provided by government funding. Public services, such as education and healthcare, are themselves an important form of economic activity whose performance is of wide public interest, and which merit an adequate recognition of the richness of the additional considerations which may arise in making effectiveness assessments using frontier techniques such as Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA). The interesting example of university Departments illustrates one such additional consideration, namely endogeneity of the available resource levels through their dependence on the Department’s achieved outputs of teaching and research. Fortunately progress can be made in the presence of such endogeneity through the application of SFA to the assessments of the overall effectiveness and performance of the public service provider, and their decomposition into both technical and allocative components, using the notion of an Achievement Possibility Set that includes the multiplier effects which such resource endogeneity generates.
    Keywords: Public services, Effectiveness, Performance measurement, Endogeneity, Stochastic frontier analysis, Data envelopment analysis
    JEL: C13 C18 C30 D20 I23
    Date: 2012–11
  8. By: Mette Asmild (Institute of Food and Resource Economics, University of Copenhagen); Kurt Nielsen (Institute of Food and Resource Economics, University of Copenhagen); Peter Bogetoft (Department of Economics, Copenhagen Business School)
    Abstract: This paper analysis the competitiveness of Danish dairy farmers relative to dairy farmers in other Northern European countries. We use individual farm accounts data from the European Commission’s Farm Accountancy Data Network (FADN) and have an average of 1665 observations per year in the period from 2002 to 2008. In all years, the hourly pay for labour is highest in Denmark and the difference is increasing, especially in 2007 and 2008. We apply Data Envelopment Analysis in a new way to capture the effect on the competitiveness from these differences in labour costs. We compare the distributions of efficiency scores in different countries to assess their relative competitiveness. To analyze the effect of labour costs we apply two different DEA models; one including the labour input as hours worked and the other including labour costs. This way we capture the effect of labour costs on the differences in average efficiencies between countries. The results shows that the Danish dairy farmers, on average, were the most economically efficient in Northern Europe in 2007 and 2008. We find that the effect of labour costs for the Danish dairy farmers is decreasing during the study period despite of the salary differences increasing. In 2002 the negative impact of having the highest hourly pay was an average 4.7 percentage points whereas it in 2008 was only 0.6 percentage points.This indicates that the Danish dairy farmers have been highly successful in adapting to having the highest, and increasing, hourly labour costs in Northern Europe.
    Keywords: International benchmarking, Data Envelopment Analysis, Agriculture, FADN data
    Date: 2012–06
  9. By: Schlüter, Tobias; Busch, Ramona; Hartmann-Wendels, Thomas; Sievers, Sönke
    Abstract: This article examines the loan rate-setting behavior of German banks for a large variety of retail and corporate loan products. We find that a bank's operational efficiency is priced in bank loan rates and alters interest-setting behavior. Specifically, we establish that a higher degree of operational efficiency leads to lower loan markups, which involve more competitive prices, and smoothed interest rate-setting. This study contributes to prior literature that has been suggesting this relationship but has produced mixed findings. For the German market this relationship is unexplored. By employing stochastic frontier analysis to comprehensively capture cost efficiency, we take the bank customers' perspective and demonstrate the extent to which borrowers benefit from cost efficient banking. --
    Keywords: interest rate pass-through models,error correction models,bank efficiency,cost efficiency,stochastic frontier analysis
    JEL: G21 G28
    Date: 2012
  10. By: Bezabih, Mintewab (Department of Economics, University of Sussex); Holden, Stein (Department of Economics and Resource Management, Norwegian University of Life Sciences); Mannberg, Andrea (Department of economics, Umeå university)
    Abstract: This paper analyses the impact of a low cost and restricted rights land certification program on the productivity of female-headed households. The analysis is based on plot level panel data from the East Gojjam and South Wollo Zones in the Amhara region of Ethiopia. The results suggest a positive and significant effect of certification on plot-level productivity, particularly on plots rented out to other operators. In addition, the results show that certification has different impacts on male and female productivity with female-headed households gaining significantly more and with zonal differences in the effectiveness of certification impacts.
    Keywords: Ethiopia; Female Headed Households; Productivity; Land Market; Certification
    JEL: D02 Q12 Q15
    Date: 2012–09–01
  11. By: Dan Andrews; Federico Cingano
    Abstract: The correlation between a firm’s size and its productivity level varies considerably across OECD countries, suggesting that some countries are more successful at channelling resources to high productivity firms than others. Accordingly, we examine the extent to which regulations affecting product, labour and credit markets influence productivity, via their effect on the efficiency of resource allocation. Our results suggest that there is an economically and statistically robust negative relationship between policy-induced frictions and productivity, though the specific channel depends on the policy considered. In the case of employment protection legislation, product market regulations (including barriers to entry and bankruptcy legislation) and restrictions on foreign direct investment, this is largely traceable to the worsening of allocative efficiency (i.e. a lower correspondence between a firm’s size and its productivity level). By contrast, financial market under-development tends to be associated with a higher fraction of low productivity relative to high productivity firms. Furthermore, stringent regulations are more disruptive to resource allocation in more innovative sectors, though the nature of innovation turns out to be important.<P>Politiques publiques et allocation des ressources : Des preuves provenant des entreprises dans les pays de l'OCDE<BR>La corrélation entre la taille d’une entreprise et son niveau de productivité varie considérablement selon les pays de l’OCDE, ce qui suggère que certains pays réussissent mieux à affecter les ressources à des entreprises à forte productivité que d’autres. Par conséquent, nous examinons dans quelle mesure les réglementations affectant les marchés des produits, du travail et du crédit influent sur la productivité, grâce à leur effet sur l’efficacité de l’affectation des ressources. Nos résultats suggèrent qu’il existe une relation économiquement et statistiquement négative robuste entre les frictions induites par la politique et la productivité, même si le canal spécifique dépend de la politique considérée. Dans le cas de la législation sur la protection de l’emploi, de la réglementation des marchés de produits (y compris les barrières à l’entrée et à la législation sur les faillites) et des restrictions à l’investissement direct à l’étranger, c’est en grande partie attribuable à la détérioration de l’efficacité allocative (i.e. une faible correspondance entre la taille de l’entreprise et son niveau de productivité). En revanche, le sous-développement du marché financier tend à être associe à une proportion plus élevée des entreprises à faible productivité par rapport aux entreprises à forte productivité. En outre, les réglementations strictes perturbent plus l’allocation des ressources dans des secteurs plus innovants, bien que la nature de l’innovation s’avère être importante.
    Keywords: productivity, allocative efficiency, firm level data, regulations, productivité, régulation, effectifs de migrants, données sur les entreprises
    JEL: D24 E23 K23 L11 L51
    Date: 2012–10–24
  12. By: Ghebru, Hosaena H. (International Food Policy Researc Institute (IFPRI)); Holden, Stein T. (Department of Economics and Resource Management (IØR),Norwegian University of Life Sciences (UMB))
    Abstract: Making use of a unique tenant-landlord matched data from the Tigray region of Ethiopia, we are able to show how strategic response of tenants - to varying economic and tenure security status of the landlords - is important in explaining productivity differentials of sharecroppers. The results show that sharecroppers yield are significantly lower on plots leased from landlords who are non-kin; female; with lower income generating opportunity; and tenure insecure households, than on plots leased from landlords with contrasting characteristics. While, on aggregate, the result shows no significant efficiency loss on kin-operated sharecropped plots, a more decomposed analyses indicate strong evidences of Marshallian inefficiency on kin-operated plots leased from landlords with weaker bargaining power and higher tenure insecurity. This study, thus, shows how failure to control for such heterogeneity of landowners' characteristics can explain the lack of clarity in the existing empirical literature on the extent of moral hazard problems in sharecropping contracts.
    Keywords: Marshallian inefficiency; kinship; matching; Reverse-Share-Tenancy; Ethiopia
    JEL: D01 O13 O18 Q12 Q15
    Date: 2012–09–01
  13. By: Yazid Dissou (Department of Economics, University of Ottawa, 120 University St., Ottawa,Ontario); Lilia Karnizova (Department of Economics, University of Ottawa, 120 University St., Ottawa,Ontario); Qian Sun (Department of Economics, University of Ottawa, 120 University St., Ottawa,Ontario)
    Abstract: Despite substantial interest in the role of energy in the economy, the degree of substitutability between energy and other production inputs, and the way energy should be included in the production function remain unresolved issues. Our study provides industry-level parameter estimates of two-level constant elasticity of substitution (CES) functions that include capital, labour and energy inputs and allow for technological change for Canada. In contrast to many existing studies, we do not impose prior restrictions on the order of input nesting, and we report the estimates for three possible specifications. We find that a nested production structure which first combines labour and energy into a composite good that is then combined with capital, fits the Canadian data best, in terms of respecting the restrictions imposed by cost minimization. We also find rather low elasticities of substitution between capital and labour, and limited evidence of exogenous technological change.
    Keywords: energy; elasticity of substitution; CES function; industry estimates
    JEL: E23 Q41 Q43 Q55
    Date: 2012
  14. By: Maria Bas; Antoine Berthou
    Abstract: This paper investigates the microeconomic effects of financial development on economic growth. The increased availability of credit is usually expected to improve firms’ growth due to the elimination of credit constraints. We investigate this question using a survey of Indian firms in the manufacturing industry during the period 1997-2006, in a context of rapid economic growth and underlying structural changes. We examine how changes in the level credit over GDP in Indian States affected firms’ value added and capital used for production. The baseline estimations show that financial development has boosted within-firm growth in India. Our findings also suggest that the impact of financial development on firms’ growth is heterogeneous across firms and industries. Credit expansion has a greater effect on firms that are initially larger, more productive or profitable. The effect of financial development is less heterogenous in sectors relying on external finance, where both medium-size and large firms have expanded more rapidly than small firms. These results are robust to various specifications that allow to control for other reforms taking place simultaneously, or for potential reverse causality.
    Keywords: financial development;banking reforms;firm panel data;firm growth and capital investments
    JEL: O16 G21
    Date: 2012–10
  15. By: Toni Mora; Joan Gil; Antoni Sicras-Mainar
    Abstract: This paper estimates the impact of the BMI, obesity and overweight on direct medical costs. We apply panel data econometrics and use a two-part model with a longitudinal dataset of medical and administrative records of patients in primary and secondary healthcare centres in Spain followed up over seven consecutive years (2004-2010). Our findings show a positive and statistically significant impact of the BMI, obesity and overweight on annual medical costs after accounting for data restrictions, different subsamples of individuals and various econometric approaches.
    Date: 2012–10

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