nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2016‒03‒23
fourteen papers chosen by
Angelo Zago
Università degli Studi di Verona

  1. Nonparametric Measures of Efficiency in the Presence of Undesirable Outputs: A By-production Approach with Weak Disposability By Subhash C. Ray; Kankana Mukherjee; Anand Venkatesh
  2. Effect of International Competition on Firm Productivity and Market Power By Jan De Loecker; Johannes Van Biesebroeck
  3. Finance and creative destruction: evidence for Italy By Francesca Lotti; Francesco Manaresi
  4. Bank ownership and cost efficiency in Russia, revisited By Mamonov, Mikhail; Vernikov, Andrei
  5. Replacing Workers: Is It a Boon or a Bane for Firm Productivity? By Elena Grinza
  6. Does Privatization Increase Firm Performance in Nigeria?: An Empirical Investigation By Usman, Ojonugwa; Olorunmolu, Joseph O.
  7. Efficiency in Education. A Review of Literature and a Way Forward By Kristof de Witte; Laura López-Torres
  8. Management Practices, Workforce Selection and Productivity By Stefan Bender; Nicholas Bloom; David Card; John Van Reenen; Stefanie Wolter
  9. Performance of microfinance institutions in achieving the poverty outreach and financial sustainability: When age and size matter? By Wijesiri, Mahinda; Yaron, Jacob; Meoli, Michele
  10. Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown By Chad Syverson
  11. Growing like Spain: 1995-2007 By García-Santana, Manuel; Moral-Benito, Enrique; Pijoan-Mas, Josep; Ramos, Roberto
  12. Technology Invention and Diffusion in Residential Energy Consumption. A Stochastic Frontier Approach By Giovanni Marin; Alessandro Palma
  13. What type of finance matters for growth? Bayesian model averaging evidence By Hasan, Iftekhar; Horvath, Roman; Mares, Jan
  14. Adjustment within the Euro Area: Is it all about competitiveness? By Gros, Daniel

  1. By: Subhash C. Ray (University of Connecticut); Kankana Mukherjee (Babson College); Anand Venkatesh (Institute of Rural Management)
    Abstract: In empirical research on productivity measurement adjusted for undesirable outputs on the side, the good and the bad outcomes are treated as joint-products of the underlying production process. In the present paper, following Murty, Russell, and Levkoff, we conceptualize the good output as technologically separable from the bad output. Moreover, we set up an integrated DEA optimization problem over the intersection of these two sub-technologies to measure the efficiency of a firm that produces a bad output alongside the good output. In an empirical illustration of our methodology, we use country level data for an unbalanced panel of 64 countries over the years 1986 through 2011 where per capita GDP is the good and per capita CO2 emission is the bad output. Weak disposability and null jointness is assumed between the bad output and fuel, the polluting input, rather than the good and bad outputs. We then utilize our DEA results to compute opportunity costs of a targeted reduction in CO2 emission in terms of required dollar amounts of reduction in per capita GDP for the individual countries in selected years.
    Keywords: Bad Output; Weak Disposability; Null jointness; By-production
    JEL: C61 Q52
    Date: 2016–03
  2. By: Jan De Loecker; Johannes Van Biesebroeck
    Abstract: We propose a framework to evaluate the potential impact of international competition on firm performance and highlight two points. First, it is important to consider effects on productive efficiency and market power in an integrated framework. The popular concept of (revenue) TFP combines both effects which can lead to problems of estimation and interpretation. Second, greater international competition enlarges the relevant market and can affect both the number and the type of competitors a firm faces, as well as the nature of competition. While it is possible that firms respond by adjusting their production operations, pricing adjustments are all but guaranteed. We contrast three estimation approaches that start, respectively, from the demand side, the product extensive margin, and the production side. We conclude with a few avenues for future research.
    JEL: F10 L1 O30
    Date: 2016–02
  3. By: Francesca Lotti (Banca d'Italia); Francesco Manaresi (Banca d'Italia)
    Abstract: In this paper we provide new evidence on the relationship between market concentration in the banking industry and firm dynamics. In Italy, in the case of a banking merger or acquisition, the antitrust authorities can require the sale of bank branches if the joint market share of the banks involved in the merger exceeds a specific threshold. We exploit this feature to carry out RDD estimates of (i) the effect of intervention by antitrust authorities on banking market concentration, and (ii) the effect of the level of bank concentration on various measures of firm dynamics. The results show that, in those areas where the authorities forced branch sales, firm's entry rates increase, reallocation of employees from incumbent to entrant firms is higher, and the survival rate of newly formed businesses increases. The overall allocative efficiency, as measured by an Olley-Pakes decomposition of labor productivity, is found to improve.
    Keywords: bank competition, firm dynamics, entry, exit, firm size, regression discontinuity
    JEL: G21 L11 M13
    Date: 2015–12
  4. By: Mamonov, Mikhail; Vernikov, Andrei
    Abstract: This paper considers the comparative efficiency of public, private, and foreign banks in Rus-sia, a transition economy with several unusual features. We perform stochastic frontier anal-ysis (SFA) of Russian bank-level quarterly data over the period 2005–2013. The method of computation of comparative cost efficiency is amended to control for the effect of revalua-tion of foreign currency items in bank balance sheets. Public banks are split into core and other state-controlled banks. Employing the generalized method of moments, we estimate a set of distance functions that measure the observed differences in SFA scores of banks and bank clusters (heterogeneity in risk preference and asset structure) to explain changes in bank efficiency rankings. Our results for comparative Russian bank efficiency show higher efficiency scores, less volatility, and narrower spreads between the scores of different bank types than in previous studies. Foreign banks appear to be the least cost-efficient market participants, while core state banks on average are nearly as efficient as private domestic banks. We suggest that foreign banks gain cost-efficiency when they increase their loans-to-assets ratios above the sample median level. Core state banks, conversely, lead in terms of cost efficiency when their loans-to-assets ratio falls below the sample median level. The presented approach is potentially applicable to analysis of bank efficiency in other dollarized emerging markets.
    Keywords: banks, comparative efficiency, SFA, state-controlled banks, Russia
    JEL: G21 P23 P34 P52
    Date: 2015–07–27
  5. By: Elena Grinza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: Using a uniquely rich longitudinal matched employer-employee data set, this paper is the first to investigate the impact of replacing workers, as measured by excess worker turnover, on firm productivity. Using a modified version of the method proposed by Ackerberg et al. (2006), that allows to take into account unobserved heterogeneity, an augmented production function with excess worker turnover entering as the regressor of interest is estimated. The main result is that replacing workers is beneficial to firm productivity. A 1 standard deviation increase in the excess worker turnover rate is estimated to increase productivity by 0.81%. The possibility of finding more suitable employer-employee matches and the presence of knowledge spillover effects are seen as the main determinants of the impact. Robustness checks indicate that the impact has an inverted U-shape, suggesting that, beyond a certain point, replacing workers ends up being harmful. However, since about 90% of firms lie before this point, increases in excess worker turnover are beneficial for the vast majority of them. They also suggest that the effect is diversified across different categories of firms. High-tech firms and firms belonging to industrial districts benefit the most from excess worker turnover. On the contrary, young and very small firms seem to even suffer from it.
    Keywords: Workers’ replacement, excess worker turnover, job-matching, knowledge spillovers, firm-specific human capital, semiparametric estimation methods, ACF-FE.
    JEL: L23 L25 L60
    Date: 2016–01
  6. By: Usman, Ojonugwa; Olorunmolu, Joseph O.
    Abstract: This paper examined the validity of the efficacy of privatization by investigating not only whether privatization has improved financial (profitability) performance of firms but also whether such improvement has impact on the operational efficiency of privatized firms for the period 1990-2001 in Nigeria. Using a panel data for a sample of 20 privatized firms obtained from the Nigerian Stock Exchange and Securities and Exchange Commission, the result showed an increase in all the profitability ratios after privatization. However, only the return on assets and return on sales were significant in explaining the difference between pre- and post-privatization performance of firms in Nigeria. The result of the operational efficiency showed a significant increase in the mean (median) values of sale efficiency and income efficiency. Interestingly, while output (real sales) and employee income of firms significantly increased after privatization, the number of employees decreased insignificantly after privatization. The paper concluded that privatization in Nigeria has worked in the sense that it improves the financial and operational efficiency performance of firms.
    Keywords: Privatization, Firm performance, Operational Efficiency, Profitability, Nigerian Stock Exchange
    JEL: L32
    Date: 2015–10–03
  7. By: Kristof de Witte (Katholieke Universiteit Leuven (Belgium)); Laura López-Torres (Business Department, Universitat Autònoma de Barcelona)
    Abstract: This paper provides an extensive and comprehensive overview of the literature on efficiency in education. It summarizes the earlier applied inputs, outputs and contextual variables, as well as the used data sources of papers in the field of efficiency in education. Moreover, it reviews the papers on education that applied methodologies as Data Envelopment Analysis, Malmquist index, Bootstrapping, robust frontiers, metafrontier, or Stochastic Frontier Analysis. Based on the insights of the literature review, a second part of the paper provides some ways forward. It attempts to establish a link between the parametric ‘economics of education’ literature and the (semiparametric) ‘efficiency in education literature’. We point to the similarities between matching and conditional efficiency; difference-in-differences and metafrontiers; and quantile regressions and partial frontiers. The paper concludes with some operative directions for prospective researchers in the field.
    Keywords: Efficiency; Education; Review; Education Economics; Operational Research
    JEL: I21 I20 D61
    Date: 2015–06
  8. By: Stefan Bender; Nicholas Bloom; David Card; John Van Reenen; Stefanie Wolter
    Abstract: Recent research suggests that much of the cross-firm variation in measured productivity is due to differences in use of advanced management practices. Many of these practices - including monitoring, goal setting, and the use of incentives - are mediated through employee decision-making and effort. To the extent that these practices are complementary with workers' skills, better-managed firms will tend to recruit higher-ability workers and adopt pay practices to retain these employees. We use a unique data set that combines detailed survey data on the management practices of German manufacturing firms with longitudinal earnings records for their employees to study the relationship between productivity, management, worker ability, and pay. As documented by Bloom and Van Reenen (2007) there is a strong partial correlation between management practice scores and firm-level productivity in Germany. In our preferred TFP estimates only a small fraction of this correlation is explained by the higher human capital of the average employee at better-managed firms. A larger share (about 13%) is attributable to the human capital of the highest-paid workers, a group we interpret as representing the managers of the firm. And a similar amount is mediated through the pay premiums offered by better-managed firms. Looking at employee inflows and outflows, we confirm that better-managed firms systematically recruit and retain workers with higher average human capital. Overall, we conclude that workforce selection and positive pay premiums explain just under 30% of the measured impact of management practices on productivity in German manufacturing.
    Keywords: management practices, productivity, wages
    JEL: L2 M2 O32 O33
    Date: 2016–03
  9. By: Wijesiri, Mahinda; Yaron, Jacob; Meoli, Michele
    Abstract: Using a two-stage DEA bootstrapped metafrontier approach, we investigate the effects of age and size on efficiency estimates of microfinance institutions (MFIs). In the first-stage, we use a metafrontier model combining with DEA bootstrapped procedure to obtain statistically robust and comparable efficiencies. In the second-stage, we employ a bootstrapped truncated regression to account for the impact of exogenous factors on both dimensions of efficiency. Results highlight the importance of model specification for MFIs operating in different geographical regions. Moreover, we find that although older MFIs perform better than younger ones in terms of achieving financial results, they are relatively inefficient in achieving outreach objectives. We also document that MFI size matters: larger MFIs tend to have higher financial and outreach efficiency.
    Keywords: Data envelopment analysis; Metafrontier; Bootstrap; Efficiency; Microfinance
    JEL: C14 C15 C18 G2 G23 O16
    Date: 2015
  10. By: Chad Syverson
    Abstract: The U.S. has been experiencing a slowdown in measured labor productivity growth since 2004. A number of commentators and researchers have suggested that this slowdown is at least in part illusory, because real output data have failed to capture the new and better products of the past decade. I conduct four disparate analyses, each of which offers empirical challenges to this “mismeasurement hypothesis.” First, the productivity slowdown has occurred in dozens of countries, and its size is unrelated to measures of the countries’ consumption or production intensities of information and communication technologies (ICTs, the type of goods most often cited as sources of mismeasurement). Second, estimates from the existing research literature of the surplus created by internet-linked digital technologies fall far short of the $2.7 trillion or more of “missing output” resulting from the productivity growth slowdown. The largest—by some distance—is less than one-third of the purportedly mismeasured GDP. Third, if measurement problems were to account for even a modest share of this missing output, the properly measured output and productivity growth rates of industries that produce and service ICTs would have to have been multiples of their measured growth in the data. Fourth, while measured gross domestic income has been on average higher than measured gross domestic product since 2004—perhaps indicating workers are being paid to make products that are given away for free or at highly discounted prices—this trend actually began before the productivity slowdown and moreover reflects unusually high capital income rather than labor income (i.e., profits are unusually high). In combination, these complementary facets of evidence suggest that the reasonable prima facie case for the mismeasurement hypothesis faces real hurdles when confronted with the data.
    JEL: E2 O3 O4
    Date: 2016–02
  11. By: García-Santana, Manuel; Moral-Benito, Enrique; Pijoan-Mas, Josep; Ramos, Roberto
    Abstract: Spanish GDP grew at an average rate of 3.5% per year during the expansion of 1995-2007, well above the EU average of 2.2%. However, this growth was based on factor accumulation rather than productivity gains as TFP fell at an annual rate of 0.7%. Using firm-level administrative data for all sectors we show that deterioration in the allocative efficiency of productive factors across firms was at the root of the low TFP growth in Spain, while misallocation across sectors played only a minor role. Cross-industry variation reveals that the increase in misallocation was more severe in sectors where government influence is more important for business success, which represents novel evidence on the potential macroeconomic costs of crony capitalism. In contrast, sectoral differences in financial dependence, skill intensity, innovative content, tradability, or capital structures intensity appear to be unrelated to changes in allocative efficiency. All in all, the observed high output growth together with increasing firm-level misallocation in all sectors is consistent with an expansion driven by a demand boom rather than by structural reforms.
    Keywords: Misallocation; Spain; TFP
    JEL: D24 O11 O47
    Date: 2016–03
  12. By: Giovanni Marin (IRCrES-CNR and SEEDS); Alessandro Palma (IEFE Bocconi – Centre for Research on Energy and Environmental Economics and Policy and SEEDS)
    Abstract: Traditional large appliances absorb a large share of residential electricity consumption and represent important targets of energy policy strategies aimed at achieving energy security. Despite being characterized by rather mature technologies, this group of appliances still offers large potential in terms of efficiency gains due to their pervasive diffusion. In this paper we analyse the electricity consumption of a set of four traditional ‘white goods’ in a panel of ten EU countries observed over 21 years (1990-2010), with the aim of disentangling the amount of technical efficiency from the overall energy saving. The technical efficiency trend is modelled through a set of technology components representing both the invention and adoption process by means of specific patents weighted by production and bilateral import flows, which allows to overcome the rigid Stochastic Frontier framework in modelling the effect of technical change. Our results show that the derived energy demand and inefficiency trends are both related to changes in the amount of available technology embodied in energy efficient appliances. The effect is significant both in its domestic and international components and suggests an active role of innovation and trade policies for achieving efficiency targets which directly impact the amount of electricity consumed by households.
    Keywords: Energy Efficiency, Technological Diffusion, Electrical Appliances, Stochastic Frontier Analysis, Residential Sector
    JEL: O33 Q55 Q41
    Date: 2015–10
  13. By: Hasan, Iftekhar; Horvath, Roman; Mares, Jan
    Abstract: We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator – the efficiency of financial intermediaries – is robustly related to long-term growth.
    Keywords: finance, growth, Bayesian model averaging
    JEL: C11 G10 O40
    Date: 2015–08–20
  14. By: Gros, Daniel
    Abstract: The key problem afflicting the eurozone today seems clear: the periphery experienced a large loss of competitiveness during the boom years. In order for these economies to recover, they must restore their competitiveness, ideally by increasing productivity. This contribution shows, however, that the story line is not that straightforward. The drivers of competitiveness might have been more macro than micro in nature. The relationship between productivity and competitiveness is sometimes the opposite of what one would expect; and the link between competitiveness and exports is also much weaker than generally believed. Daniel Gros is Director of CEPS. An earlier version of this paper was prepared for the 14th Munich Economic Summit on “Competitiveness and Innovation: The Quest for Best", co-organised by CESifo and the BMW Foundation Herbert Quandt, 21-22 May 2015, and published in CESifo Forum, Vol. 16 (3):18-25 ( He gratefully acknowledges useful comments and suggestions received from Stefano Micossi, who recently completed a related contribution to the “Rebooting Europe – Step 2” project organised by the Centre for Economic Policy Research (CEPR). CEPS has published this latter paper on its website as a companion piece to the present study (see “Balance-of-Payments Adjustment in the Eurozone”, CEPS Policy Brief No. 38, January 2016).
    Date: 2016–01

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