nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2017‒10‒15
twenty-two papers chosen by

  1. Heterogeneity, Measurement and Misallocation in African Agriculture By Christopher Udry; Douglas Gollin
  2. Contract Farming, Farm Mechanization, and Agricultural intensification: The Case of Rice Farming in Cote d’Ivoire By MANO, Yukichi Y.; TAKAHASHI, Kazushi; OTSUKA, Keijiro
  3. Bolder Divestment Not Better Performance Contracts are the Solution for India's Public Sector By Ajay Chhibber; Swati Gupta
  4. Corporate governance and firm performance in China By Margit Molnar; Baolin Wang; Wenhao Chen
  5. The Impact of Employing Mismatched Workers on Firm Productivity, Wages and Profits By Halvarsson, Daniel; Tingvall, Patrik
  6. Technology-specific Production Functions By Michele Battisti; Filippo Belloc; Massimo Del Gatto
  7. Pollution Meets Efficiency: Multi-equation modelling of generation of pollution and related efficiency measures* By Førsund, Finn R
  8. Misallocation or Mismeasurement? By Mark Bils
  9. Acquisitions, Markups, Efficiency, and Product Quality: Evidence from India By Stiebale, Joel; Vencappa, Dev
  10. The transient and persistent efficiency of Italian and German universities: A stochastic frontier analysis By Agasisti, Tommaso; Gralka, Sabine
  11. The Sources of Growth in a Technologically Progressive Economy: the United States, 1899-1941 By Bakker, Gerben; Crafts, Nicholas; Woltjer, Pieter
  12. Import Competition and Vertical Integration: Evidence from India By Vencappa, Dev; Stiebale, Joel
  13. Estimating the Local Productivity Spillovers from Science By Subhra Saha; Joseph Staudt; Bruce Weinbergx
  14. Agricultural Trade Reform, Reallocation and Technical Change: Evidence from the Canadian Prairies By Brown, Mark; Ferguson, Shon; Viju, Crina
  15. Foreign Ownership and Skill-biased Technological Change By Koch, Michael; Smolka, Marcel
  16. Healthy Business? Managerial Education and Management in Healthcare By Nicholas Bloom; Renata Lemos; Raffaella Sadun; John Van Reenen
  17. Measuring productivity and absorptive capacity evolution By Steff De Visscher; Markus Eberhardt; Gerdie Everaert
  18. Will a Shrink Make you Richer? Gender Differences in the Effects of Psychotherapy on Labour Efficiency By Cozzi, Guido; Galli, Silvia; Mantovan, Noemi
  19. Older and Slower: The Startup Deficit’s Lasting Effects on Aggregate Productivity Growth By Titan Alon; David Berger; Robert Dent; Benjamin Pugsley
  20. Regional Effects of Publicly Sponsored R&D Grants on SME Performance By Gustavsson Tingvall, Patrik; Videnord, Josefin
  21. The future development of world records By Franziska K. Kruse; Wolfgang Maennig
  22. Disentangling Occupation- and Sector-specific Technological Change By Barany, Zsofia L.; Siegel, Christian

  1. By: Christopher Udry (Yale University); Douglas Gollin (University of Oxford)
    Abstract: Empirical analysis of farm-level data from African agriculture consistently shows enormous dispersion in measured total factor productivity (TFP) at the farm level. Some farmers achieve relatively high levels of TFP, but many farms appear to operate at very low levels of measured TFP. One possible explanation for this is that some farmers have low levels of skill but continue nevertheless to farm because of market failures or distortions that make it difficult for them to be bought out by more skillful farmers. Previous research has suggested that this kind of misallocation may be an important source of differences in agricultural productivity across countries – and thus an important explanation for cross-country differences in per capita income. This paper notes that misallocation can be difficult to distinguish empirically from a range of measurement errors, classical and non-classical. It can also be difficult to measure productivity well in a highly volatile production environment. Finally, differences in farmer quality can be observationally similar to heterogeneity in unobserved land quality. Our paper presents a theoretical framework and empirical results that seek to advance our understanding of the distinctions between heterogeneity, measurement error, and misallocation in African agriculture, using data from three African countries. We use within-farmer variation in factor shares and productivity across plots to disentangle measurement error, land productivity variation and transitory shocks from misallocation as sources of dispersion in factor allocation, output and TFP. Preliminary results suggest that both measurement error and unobserved heterogeneity in land quality can account for a large amount of the measured differences in farm productivity, and these results also imply that misallocation has a relatively modest impact on output.
    Date: 2017
  2. By: MANO, Yukichi Y.; TAKAHASHI, Kazushi; OTSUKA, Keijiro
    Abstract: It is critically important to intensify farming systems by disseminating proper agronomic practices and promoting the increased application of inputs to raise agricultural productivity in sub-Saharan Africa. However, the region’s public agricultural extension systems are weak, and their input and output markets often fail to function properly. Under these circumstances, contract farming (CF) is expected to be a promising way to overcome market imperfections by providing inputs, production training, and marketing services. We examine this possibility by analysing the case of rice production CF in Cote d’Ivoire. We find that CF did not lead to farming intensification, due mainly to the inadequate and uncertain provision of tractor services. Further analysis reveals a complementarity between tractor use and labour inputs, whereby tractor use in land preparation enhanced the adoption of input- and labour-intensive practices in subsequent farming activities, thereby increasing labour use and improving land productivity. The diffusion of tractors is thus likely to be key to the intensification of rice farming systems in sub-Saharan Africa.
    Keywords: contract farming, rice production, tractor, farm mechanization, agricultural intensification, Green Revolution, sub-Saharan Africa, Cote d’Ivoire
    JEL: N57 O12 O13 Q12 Q16 Q18
    Date: 2017–09
  3. By: Ajay Chhibber (George Washington University); Swati Gupta (Massachusetts Institute of Technology)
    Abstract: This paper analyses the performance of India’s Public Sector Undertakings (PSU’s) using measures of labor and overall efficiency and productivity indicators as opposed to financial returns. Using methods that correct for selection bias the results show that performance contracts do not improve firm efficiency but disinvestment has a very strong positive effect on firm efficiency. Disinvestment improves labor productivity and efficiency, which is not surprising, but it also improves overall efficiency. India should pursue much bolder privatization even of PSU’s which claim to be making operational profits – such as Air India - as privatization improves overall firm efficiency and unlocks capital for use elsewhere – especially in public infrastructure and reduces the possibility of political interference in their functioning in future.
    Date: 2017
  4. By: Margit Molnar; Baolin Wang; Wenhao Chen
    Abstract: A key priority in China’s “new normal” period -- where returns on investment are slackening -- is corporate governance, which could lead to enhanced productivity by a better management of resources at the firm level. Corporate governance principles for listed firms follow global best practices, though their history is relatively short and the Chinese stock market has a number of features, which make the investigation of the impact of various corporate governance practices on firm performance of particular interest. Productivity is considered as a major measure of firm performance, but for comparison accounting indicators are also used to check the impact of selected corporate governance practices using firm-level data of listed firms between 1999-2015. The results are broadly in line with the existing literature: once controlling for endogeneity, there is no evidence that a greater share of independent directors boosts firm performance in general. At the time when the requirement that at least one third of directors must be independent was introduced in 2002, however, profitability improved. A greater salary gap between executives and staff hurts productivity, but boosts ROA and ROE, which are often among the objectives of executives and thus encourage them to seek short-term returns, even at the expense of productivity. While volume-based growth may lead to higher performance by the accounting ratios, it does not necessarily guarantee higher productivity. If such an expansion is debt financed, it can even harm productivity. Excessive ownership concentration appears harmful, but a certain degree of concentration may improve performance. Institutional investors, even though may own only a tiny fraction of shares, are found to boost firm performance. This Working Paper relates to the 2017 OECD Economic Survey of China ( y-china.htm).
    Keywords: board structure, executive compensation, independent directors, institutional investors, ownership concentration, productivity
    JEL: G34 G38 P31
    Date: 2017–10–11
  5. By: Halvarsson, Daniel (The Ratio Institute); Tingvall, Patrik (The Ratio Institute)
    Abstract: Educational mismatch in the form of over- and under-educated workers has long been studied in relation to labor market outcomes for individual workers. While its consequences for individual workers and society are dire, we have only anecdotal evidence of its consequences for firms' competitiveness. To bridge this gap, this paper studies the impact of mismatch on firm productivity, wages and profit. The results suggest an asymmetric effect from employing over- and under-educated workers. We find that while employing over-educated workers add to wage cost, there are no matching productivity gains, By contrast, the performance of under-educated workers more than compensates for their wage costs, leading to increased profits at the firm level. The net effect, therefore, in the form of gross operating surplus is significantly negative (positive) when firms employ over- (under-)educated workers. The results suggest that the positive effects primarily stem from under-educated young workers, whereas the losses can be traced to over-educated older workers.
    Keywords: Educational; mismatch; ·; Productivity; ·; Labor; cost; ·; Profits; ·; Proxy; variable
    JEL: J24 L25 L60
    Date: 2017–09–21
  6. By: Michele Battisti (University of Palermo, Italy; CeLEG LUISS Guido Carli, Italy; The Rimini Centre for Economic Analysis); Filippo Belloc (“G.d’Annunzio” University, Italy); Massimo Del Gatto (“G.d’Annunzio” University, Italy; CRENoS, Italy)
    Abstract: We rely on mixture models to estimate technology-specific production functions avoiding any type of ex-ante assumption on the degree of technological sharing across firms and leaving the number of available technologies unconstrained. Internationally comparable firm-level data are used, to potentially capture all possible technologies available worldwide. Differently from conventional TFP estimates, where the terms “TFP”, “productivity” and “technology” are often used interchangeably, our approach enables us to isolate the contribution to labour productivity stemming from technology (i.e. between-technology TFP) from the contribution associated to idiosyncratic productivity shocks not related to technology (i.e. within-technology TFP). While we find the former to be much larger than the latter in most sectors, the relative role of these two dimensions varies considerably across firms, being often reversed. We also find that the firm-level gaps are non-linearly correlated with the international flows of technology, as measured by the OECD country-sector technology payments and receipts. In particular, we show higher incoming (outcoming) flows of technology to be associated to higher (lower) average and dispersion of the between-technology TFP gaps. This stresses the growing importance of the availability of internationally comparable data in dealing with the technological dimension of firm-level productivity.
    Keywords: TFP, technology adoption, production function estimation, mixture models
    JEL: D24 C29
    Date: 2017–10
  7. By: Førsund, Finn R (Dept. of Economics, University of Oslo)
    Abstract: The generation of unintended residuals in the production of intended outputs is the key factor behind our serious problems with pollution. The way this joint production is modelled is therefore of crucial importance for our understanding and empirical efforts to change economic activities in order to reduce harmful residuals. The materials balance tells us that residuals stem from the use of material inputs. The modelling of joint production must therefore reflect this. A multi-equation model building on the factorially determined multi-output model of classical production theory can theoretically satisfy the materials balance. Potentially complex technical relationships are simplified to express each of the intended outputs and the unintended residuals as functions of the same set of inputs. End-of-pipe abatement activity is introduced for a production unit. Introducing direct environmental regulation of the amount of pollutants generated an optimal private solution based on profit maximisation is derived. Serious problems with the single-equation models that have dominated the literature studying efficiency of production of intended and unintended outputs the last decades are revealed. An important result is that a functional trade-off between desirable and undesirable outputs for given resources, as exhibited by single-equation models, is not compatible with the materials balance and efficiency requirements on production relations. Multi-equation models without this functional trade-off should therefore replace single equation models. Extending the chosen multi-equation model to allow for inefficiency, three efficiency measures are introduced: desirable output efficiency, residuals efficiency, and abatement efficiency. All measures can be estimated separately using the non-parametric DEA model.
    Keywords: Materials balance; Joint Production; Residuals generation; Single-equation and multi-equation models; End-of-pipe abatement; Efficiency measures; Data Envelopment Analysis (DEA)
    JEL: C51 D24 D62 Q50
    Date: 2017–09–15
  8. By: Mark Bils (U. of Rochester)
    Abstract: Revenue per unit of inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation, which lowers aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error in revenue and inputs. Applying our correction to U.S. manufacturing micro data eliminates an otherwise mysterious sharp downward trend in allocative efficiency from 1976–2009. For Indian manufacturing from 1985–2011, meanwhile, we estimate that true marginal products were only one-half as dispersed as measured average products.
    Date: 2017
  9. By: Stiebale, Joel; Vencappa, Dev
    Abstract: We use a rich firm-product panel data set to analyze the effects of domestic and foreign acquisitions on Indian manufacturing firms. Our results indicate that, on average, acquisitions are associated with increases in quantities and markups and lower marginal costs in target firms. We also provide evidence that the quality of products increases while quality-adjusted prices fall upon acquisitions. The effects are most pronounced if acquirers are located in technologically advanced countries.
    JEL: F23 G34 L25 D22 D24
    Date: 2017
  10. By: Agasisti, Tommaso; Gralka, Sabine
    Abstract: Despite measures on the European level to increase the compatibility between the HE sectors of the member states, the recent literature exposes variations in their efficiencies. To gain insights into these differences we split the efficiency term according to the two management levels each university is confronted with. Utilizing a recent advancement in the method to measure efficiency, we separate short-term (transient) and long-term (persistent) efficiency, while controlling for unobserved institution specific heterogeneity. While the first term reflects the efficiency of the individual universities working within the country, the second term echoes the influence of the country specific overall HE structure. The cross-country comparison displays if the overall efficiency difference between countries is related to individual performance of their universities or their HE structure. This allows more purposeful policy recommendation and expands the literature regarding the efficiency of universities in a fundamental way. Choosing Italy and Germany as two important illustrative examples we can take advantage of a novel dataset including characteristics of institutions in both countries for an exceptional long period of time from 2001 to 2011. We show that the Italian universities exhibit a higher overall efficiency value than their German counterparts. With the individual universities working at the upper bound of efficiency in both countries, the overall inefficiency as well as the gap between the countries is caused by persistent, structural inefficiency. To expedite a true European Area of Higher Education future measures should hence aim at the country specific structure, not solely at affecting the activities of single universities.
    Keywords: Stochastic Frontier Analysis,Persistent Inefficiency,Higher Education,Costfunction,Italy,Germany
    JEL: C14 C23 D61 I22 I23 H52
    Date: 2017
  11. By: Bakker, Gerben (London School of Economics); Crafts, Nicholas (University of Warwick); Woltjer, Pieter (University of Groningen)
    Abstract: We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better-measured labor quality, and find TFP-growth was lower than previously thought, broadly based across sectors, and strongly variant intertemporally. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four ‘great inventions’. Third, TFP-growth was not driven indirectly by spillovers from great inventions such as electricity. Instead, the creative-destruction-friendly American innovation system was the main productivity driver.
    Keywords: productivity growth; total factor productivity; great inventions; spillovers; United States — history JEL Classification: N11, N12, O47, O51.
    Date: 2017
  12. By: Vencappa, Dev; Stiebale, Joel
    Abstract: This paper uses a rich firm-product panel data set of Indian manufacturing firms to analyze the relationship between import competition and vertical integration. Exploiting exogenous variations from changes in India's trade policy, we find that import competition induced by falling output tariffs increases vertical integration by domestic firms, with the effects concentrated in rather homogenous product categories, among firms that mainly operate on the domestic market and in larger firms.
    JEL: F23 G34 L25 D22 D24
    Date: 2017
  13. By: Subhra Saha; Joseph Staudt; Bruce Weinbergx
    Abstract: We estimate the local productivity spillovers from science by relating wages and real estate prices across metros to measures of scienti c activity in those metros. We address three fundamental challenges: (1) factor input adjustments using wages and real estate prices, along with Shepards Lemma, to estimate changes metros' productivity, which must equal changes in unit production cost; (2) unobserved differences in metros/causality using a share shift index that exploits historic variation in the mix of research in metros interacted with trends in federal funding for specific fields as an instrument; (3) unobserved differences in workers using data on the states in which people are born. Our estimates show a strong positive relationship between wages and scientifc research and a weak positive relationship for real estate prices. Overall, we estimate high rate of return to research.
    JEL: J3 R11 O33
    Date: 2017–01
  14. By: Brown, Mark (Statistics Canada); Ferguson, Shon (Research Institute of Industrial Economics (IFN)); Viju, Crina (Institute of European, Russian and Eurasian Studies)
    Abstract: We decompose the impact of trade reform on technology adoption and land use to study how aggregate changes were driven by reallocation versus within-farm adaptation. Using detailed census data covering over 30,000 farms in Alberta, Saskatchewan and Manitoba, Canada we find a range of new results. We find that the reform-induced shift from producing low-value to high-value crops for export, the adoption of new seeding technologies and reduction in summer fallow observed at the aggregate level between 1991 and 2001 were driven mainly by the within-farm effect. In the longer run, however, reallocation of land from shrinking and exiting farms to growing and new farms explains more than half of the aggregate changes in technology adoption and land use between 1991 and 2011.
    Keywords: Agricultural Trade Liberalization; Export Subsidy; Technical Change; Farm Size; Firm Heterogeneity
    JEL: F14 O13 Q16 Q17 Q18
    Date: 2017–09–26
  15. By: Koch, Michael; Smolka, Marcel
    Abstract: This paper investigates theoretically and empirically firm-internal skill adjustments upon acquisition by a foreign investor and adresses the following questions: i) Does a acquired firm change its demand for skill and how (via hiring or training)? ii) Why would acquired firms engage in skill upgrading? Is it driven by by a greater market scale granted by the foreign parent? iii) How do technology and skill upgrading jointly affect the productivity of acquired firms?
    JEL: D22 D24 F23 G34
    Date: 2017
  16. By: Nicholas Bloom; Renata Lemos; Raffaella Sadun; John Van Reenen
    Abstract: We investigate the link between hospital performance and managerial education by collecting a large database of management practices and skills in hospitals across nine countries. We find that hospitals that are closer to universities offering both medical education and business education have higher management quality, more MBA trained managers and lower mortality rates. This is true compared to the distance to universities that offer only business or medical education (or neither). We argue that supplying joint MBA-healthcare courses may be a channel through which universities increase medical business skills and raise clinical performance.
    JEL: I18 L32 M20 M5
    Date: 2017–09
  17. By: Steff De Visscher; Markus Eberhardt; Gerdie Everaert
    Abstract: We develop a new way to estimate cross-country production functions which allows us to parametrize unobserved non-factor inputs (total factor productivity) as a global technology process combined with country-specific time-varying absorptive capacity. The advantage of our approach is that we do not need to adopt proxies for absorptive capacity such as investments in research and development (R&D) or human capital, or specify explicit channels through which global technology can transfer to individual countries, such as trade, foreign direct investment (FDI) or migration: we provide an endogenously-created index for relative absorptive capacity which is easy to interpret and encompasses potential proxies and channels. Our implementation adopts an unobserved component model and uses a Bayesian Markov Chain Monte Carlo (MCMC) algorithm to obtain posterior estimates for all model parameters. This contribution to empirical methodology allows researchers to employ widely-available data for factor inputs (capital, labor) and GDP or value-added in order to arrive at policy-relevant insights for industrial and innovation policy. Applying our methodology to a panel of 31 advanced economies we chart the dynamic evolution of global TFP and country-specific absorptive capacity and then demonstrate the lose relationship between our estimates and salient indicators of growth-enhancing economic policy.
    Keywords: total factor productivity, absorptive capacity, common factor model, time-varying parameters, unobserved component model, MCMC
    Date: 2017
  18. By: Cozzi, Guido; Galli, Silvia; Mantovan, Noemi
    Abstract: This paper provides a first theoretical and empirical analysis of the effects of psychotherapy on individual productivity. We build a simple model in which a deterioration of mental health endogenously causes a decrease in productivity, which is counterbalanced by psychotherapy. We test our hypotheses on the British Household Panel Survey data. We find that individuals suffering from mental health problems benefit economically from consulting a psychotherapist. Moreover, we find that the returns are higher for men than for women, even though women are more likely to seek help.
    Keywords: Gender Differences; Mental Health; Wage Gap.
    JEL: I12 J16 J31
    Date: 2017
  19. By: Titan Alon; David Berger; Robert Dent; Benjamin Pugsley
    Abstract: We investigate the link between declining firm entry, aging incumbent firms and sluggish U.S. productivity growth. We provide a dynamic decomposition framework to characterize the contributions to industry productivity growth across the firm age distribution and apply this framework to the newly developed Revenue-enhanced Longitudinal Business Database (ReLBD). Overall, several key findings emerge: (i) the relationship between firm age and productivity growth is downward sloping and convex; (ii) the magnitudes are substantial and significant but fade quickly, with nearly 2/3 of the effect disappearing after five years and nearly the entire effect disappearing after ten; (iii) the higher productivity growth of young firms is driven nearly exclusively by the forces of selection and reallocation. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980. Using an instrumental variables strategy we find a consistent pattern across states/MSAs in the U.S. The patterns are broadly consistent with a standard model of firm dynamics with monopolistic competition.
    JEL: E01 E24
    Date: 2017–09
  20. By: Gustavsson Tingvall, Patrik (The Ratio Institute); Videnord, Josefin (The Ratio Institite)
    Abstract: This paper explores regional variation in the effects of publicly sponsored R&D grants on SME performance. The results suggest that there is no guarantee that the grants will impact firm growth, either positive or negative. Studying the heterogeneity of the results, positive growth effects are most likely to be found for publicly sponsored R&D grants targeting SMEs located in regions abundant with skilled labor, whereas the opposite is found for SMEs located in regions with a limited supply of skilled workers.
    Keywords: R&D grants; SME; Economic growth; Regional growth; Selective policies
    JEL: H81 O18 O38 O40 R11 R58
    Date: 2017–04–18
  21. By: Franziska K. Kruse (Chair for Economic Policy, University of Hamburg); Wolfgang Maennig (Chair for Economic Policy, University of Hamburg)
    Abstract: We conduct an innovative analysis of sporting world records by a) using economic instead of sporting determinants and b) by using multivariate stochastic frontier functions. Using data from 48 different disciplines between 1970 and 2014, we show that world records are close to full efficiency and therefore actual athletic frontiers. Forecasts including economic determinants imply that the dynamics of world records largely depend on the dynamics of the frontiers and their driving forces, i.e., socio-economic developments.
    Keywords: World records, productivity growth, stochastic frontier function, technical efficiency
    JEL: C10 C23 C53 L83
    Date: 2017–10–05
  22. By: Barany, Zsofia L. (SciencesPo Paris); Siegel, Christian (University of Kent)
    Abstract: Occupational and sectoral labor market patterns display a significant overlap. This implies that economic models can explain these patterns to a large degree through either sector- or occupation-specific technological change, but stay silent about the level of specificity. We propose a model where technologies evolve at the sector-occupation level, allowing us to extract sector-only and occupation-only components and to quantify their importance. We find that most of productivity changes are occupation-specific, but that there is also a sizable sector component. We contrast the data and our baseline model against implications of models where technological change is restricted to be either at the sector or at the occupation level, or both. All three restricted models can replicate both sectoral and occupational outcomes very well, but occupation-specific changes are crucial for within-sector changes of occupational employment and income shares.
    Keywords: structural change, polarization, biased technological change
    JEL: O41 J24 O33
    Date: 2017–09

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