nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2019‒10‒14
fourteen papers chosen by

  1. The effect of public sector efficiency on firm-level productivity growth: The Italian case By Milenko Fadic; Paula Garda; Mauro Pisu
  2. Efficiency in South African water utilities: a comparison of estimates from DEA, SFA and StoNED By Genius Murwirapachena; Jugal Mahabir; Richard Mulwa; Johane Dikgang
  3. Dynamic Productivity Decomposition with Allocative Efficiency By HOSONO Kaoru; TAKIZAWA Miho
  4. Productivity estimates for South Africa from CES production functions By Daan Steenkamp
  5. Does Mobility across Universities Raise Scientific Productivity? By Ejermo, Olof; Fassio, Claudio; Källström, John
  6. Efficient and sustainable bioenergy production in Swedish forests – a network DEA approach By Zhou, Wenchao; Bostian, Moriah; Färe, Rolf; Grosskopf, Shawna; Lundgren, Tommy
  7. Price Competition vs. Quality Competition: Evidence from a Survey By MORIKAWA Masayuki
  8. Estimating and decomposing most productive scale size in parallel DEA networks with shared inputs: A case of China Five-Year Plans By Saeed Assani; Jianlin Jiang; Ahmad Assani; Feng Yang
  9. Efficiency of South African water utilities: a double bootstrap DEA analysis By Celiwe Samkange; Jugal Mahabir; Johane Dikgang
  10. Engines of Sectoral Labor Productivity Growth By Zsofia Barany; Christian Siegel
  11. The Effect of High-Tech Clusters on the Productivity of Top Inventors By Moretti, Enrico
  12. Minimum Wages and Productivity: Evidence from Japan By MORIKAWA Masayuki
  13. Complementarity between Firm Exporting and Firm Importing on Industry Productivity and Welfare By ARA Tomohiro
  14. Why is Labor Productivity in Israel so Low? By Hazan, Moshe; Tsur, Shay

  1. By: Milenko Fadic; Paula Garda; Mauro Pisu
    Abstract: This paper investigates the causal effect of public administration efficiency on firm-level productivity. To this purpose, we combine newly available data from Italy on public administration efficiency of subnational governments with geo-localised firm-level data for the years 2004-2014. Italy provides a relevant setting to examine the relationship between public administration efficiency and firm productivity because of large and persistent spatial disparities in economic performance and local administrative capacity. The identification strategy exploits discontinuities that occur in local public-administration efficiency across provincial borders. The results suggest that local public administration efficiency has a large effect on firms’ productivity growth. Increasing local public administration efficiency from the 25th percentile to the 75th percentile would raise the firm-level labour productivity in Italy by 2.4 percentage points.
    Keywords: firm growth, firm performance, interjurisdictional differentials, local government expenditures, local public services, productivity, public administration, public goods, public services
    JEL: D24 H41 H72 H73 L25
    Date: 2019–10–14
  2. By: Genius Murwirapachena; Jugal Mahabir; Richard Mulwa; Johane Dikgang
    Abstract: Climate change has brought renewed and increasing attention to the productivity and efficiency of the water sector. This has stimulated interest, which has manifested itself in the increased application of statistical tools to measure the productivity and efficiency of water utilities. Policymakers in developed countries are already making use of statistical analyses of water systems for determining productivity and efficiency. For efficiency analysis to be useful to policymakers, the various approaches used should produce estimates that are consistent in identifying the best and worst firms, as well as overall rankings of firms in terms of their efficiency levels. Generally, data envelopment analysis (DEA) and stochastic frontier analysis (SFA) are the most common frontier analysis techniques used to measure the productivity and efficiency of water utilities. DEA places less emphasis on the shape of the frontier and is credited for its axiomatic properties that can accommodate a multiplicity of inputs and outputs, as well as its ability to consider returns to scale. On the other hand, SFA decomposes deviations from the frontier into random noise and inefficiency terms. These tools are not direct competitors, but complement each other, due to their respective advantages. In the recent years, a new efficiency analysis technique, the stochastic non-parametric envelopment of data (StoNED) emerged in the literature. StoNED combines the axiomatic, non-parametric, piecewise linear DEA-style frontier with a stochastic SFA-style treatment of inefficiency and noise. Thus, it is more robust to both model misspecification and noise. In this study we compare efficiency scores from DEA, SFA, and StoNED, using the South African water sector as a case study. More precisely, the study investigates the consistency of efficiency scores obtained from these three efficiency analysis techniques in the context of a water sector from a developing country. We estimate cost efficiency based on cross-sectional data from 102 South African water utilities in the period 2013/14. Thus, the study extends existing studies that compare frontier analysis methods by introducing a robust semi-non-parametric methodological tool. This methodological cross-checking process using three methodological tools provides more robust, reliable and useful information and diagnostics for regulatory analysis and policymakers. This is an innovative approach, and to the best of our knowledge this is one of few such studies; and, the first cross-checking process using three methods; to be applied to the water sector. Furthermore, this is the first application of the StoNED approach to the water sector. The results suggest that the StoNED method (based on the methods of moments estimator) outperforms SFA and DEA. However, based on the pseudo-likelihood estimator, SFA outperformed StoNED. Overall, the results suggest moderate consistency across the three methods. Based on the findings, we conclude that our study presents a robust approach to efficiency analysis in water utilities.
    Keywords: water utilities, StoNED, DEA, SFA, frontier efficiency
    JEL: D24 H41 P28 Q25
    Date: 2019–04
  3. By: HOSONO Kaoru; TAKIZAWA Miho
    Abstract: We propose a novel approach to decomposing aggregate productivity growth into changes in technical efficiency, allocative efficiency, and variety of goods as well as relative efficiency of entrants and exiters. We measure technical efficiency by the aggregate production possibility frontier and allocative efficiency by the distance from the frontier. Applying our approach to establishment- and firm-level datasets from Japan, we find that the allocative efficiency among survivors declined during the banking crisis period. We also find that the technical efficiency declined during the Global Financial Crisis period. Furthermore, we find that both entrants and exiters were likely to be more efficient than survivors.
    Date: 2019–09
  4. By: Daan Steenkamp
    Abstract: This paper provides estimates of the elasticity of substitution and total factor productivity (TFP) for South Africa. Estimates are based on constant elasticity of substitution (CES) production functions. Estimates of potential output and the output gap implied by different CES model specifications are also compared to those from other models.
    Keywords: constant elasticity of substitution, production functions, productivity, Output gap
    JEL: E23 E25 O41 D33
    Date: 2019–07
  5. By: Ejermo, Olof (Lund University); Fassio, Claudio (Lund University); Källström, John (Lund University)
    Abstract: Using a highly comprehensive new dataset on Swedish researchers, we investigate the effects of interuniversity mobility on researcher productivity. Our study suggests substantial gains from mobility on scientific output. We find that mobility induces a long-lasting increase in a researcher’s publications by 29% and citations by 50%. Moreover, we analyze the factors that are likely to have an impact on the overall effect of mobility: the interaction of mobility and promotion, the importance of the status of the destination university, as well as the role of the specific disciplinary field of mobile researchers. The empirical analysis addresses selection using inverse probability treatment censoring weights.
    Keywords: Economics of science; mobility; scientific productivity; university
    JEL: I23 J24 O31
    Date: 2019–10–04
  6. By: Zhou, Wenchao (CERE - the Center for Environmental and Resource Economics); Bostian, Moriah (Lewis & Clark College, USA); Färe, Rolf (Department of Economics, Oregon State University); Grosskopf, Shawna (CERE - the Center for Environmental and Resource Economics); Lundgren, Tommy (CERE - the Center for Environmental and Resource Economics)
    Abstract: Forest fuel defined as branches and tops (GROT) of harvested trees represents a large share of forest biomass and is increasingly viewed as a potential energy source. This study assesses the economic potentials of forest bioenergy production in Swedish forests, using a network data envelopment analysis (DEA) model to estimate the technology for biofuel and other forest products. We consider that forests are managed to use multiple inputs to produce multiple outputs. Outputs include sawtimber, pulpwood, fuelwood, and bioenergy in terms of GROT. Our model also considers environmental concerns over biodiversity and CO2 emissions from burning biomass. We apply the network DEA model to measure the revenue efficiency of forest production of Swedish forests using a panel consisting of 20 counties and covering the years from 2008 to 2014. Our results show that there exist persistent economic inefficiencies of forest production in some counties, reducing the overall efficiency of Sweden’s forest and wood products industry. In addition, we also estimate the potential increase in bioenergy, deadwood and CO2 emissions reduction from combustion of bioenergy and by-products from sawtimber and pulpwood.
    Keywords: Climate; Bioenergy; Efficiency; Environment; Forests; Network
    JEL: D20 D21 D22 D24
    Date: 2019–10–03
  7. By: MORIKAWA Masayuki
    Abstract: The argument that Japanese firms which operate under a price competition paradigm should change their strategy from price competition to quality competition to improve their productivity is prevalent, but empirical evidence to support this argument has rarely been presented. This study, using data from an original firm survey, presents findings on firms' strategy on price/quality competition and on the relationship between this competition strategy and firm characteristics. The results indicate, first, that the majority of firms prefer quality competition to price competition and this tendency is stronger among firms operating in the service industries. Second, firms which employ a quality competition strategy tend to have highly educated employees, to actively invest in intangible assets such as R&D, and demonstrate a higher tendency to engage in innovation. Third, the profitability of firms that employ a quality competition strategy is higher than firms with a price competition strategy, but the difference in productivity between the strategies is unclear.
    Date: 2019–09
  8. By: Saeed Assani; Jianlin Jiang; Ahmad Assani; Feng Yang
    Abstract: Recently (Assani et al. 2018) introduced the concept of the most productive scale size (MPSS) for multi-stage data envelopment analysis (DEA) systems which are connected in series. However, some real-life applications may have different structures. This paper investigates the MPSS measurements for systems consisting of multiple subsystems connected in parallel. New models for determining the MPSS of the system and the subsystems are proposed. It is proved that the MPSS of the system can be decomposed as the weighted sum of MPSS of the individual subsystems. The main result is that the system is overall MPSS if and only if it is MPSS in each subsystem. MPSS decomposition allows policymakers to target the non-MPSS subsystems of the production process in order to the subsequent improvements. An application of China Five-Year Plans (FYPs) is used to show the applicability of the proposed methods for estimating and decomposing MPSS in parallel network DEA. Industry and Agriculture sectors with shared inputs are considered as two subsystems in the FYPs. Interesting findings have been noticed. First, for an equal ratio of shared inputs (50 Industry: 50 Agriculture), the Industry sector achieved MPSS in 22 years compared to 17 years in Agriculture. In other words, using the same resources of population, GDP, and general government final consumption, the Industry sector is more stable and productive than the Agriculture sector. Second, the last two FYPs, 11th and 12th, were the perfect two FYPs among the others.
    Date: 2019–10
  9. By: Celiwe Samkange; Jugal Mahabir; Johane Dikgang
    Abstract: Although the efficiency of the water sector has been studied extensively utilising data envelopment analysis (DEA), the literature tends to use the conventional DEA model to compute efficiency scores. However, conventional DEA input/output data may contain random errors, which may result in distorted efficiency frontiers due to statistical noise. Bias-correcting double-bootstrap DEA came into being because of this shortcoming in the conventional DEA approach. This study joins a growing number of studies using bootstrapping DEA to correct efficiency scores. Most importantly, little is known about the comparative performance of conventional DEA versus bias-corrected DEA. A conventional model is deterministic in nature and yields biased efficiency scores. To determine the bias-corrected efficiency scores of rural and urban water utilities in South Africa, this study uses a robust, non-parametric DEA model to generate them. The truncated double-bootstrap regression results give insight into the drivers of efficiency. We found that there are significant differences between the rankings and efficiency scores generated by the conventional DEA model compared to the double-bootstrap DEA model, for both urban and rural samples. The regression model found location and the ratio of metered to unmetered connections to be significant determinants of efficiency for both urban and rural water utilities. Non-revenue water is a significant explanatory variable for urban utilities only. The number of consuming units mattered for the rural utilities only.
    Keywords: bias correction, data envelopment analysis, Efficiency, water utilities
    JEL: H40 H70 Q25 Q28
    Date: 2019–09
  10. By: Zsofia Barany (Sciences Po, Paris); Christian Siegel (University of Kent)
    Abstract: We study the origins of labor productivity growth and its differences across sectors. In our model, sectors employ workers of different occupations and various forms of capital, none of which are perfect substitutes, and technology evolves at the sector-factor cell level. Using the model we infer technologies from US data over 1960-2017. We find sector-specific routine labor augmenting technological change to be crucial. It is the most important driver of sectoral differences, and has a large and increasing contribution to aggregate labor productivity growth. Neither capital accumulation nor the occupational employment structure within sectors explains much of the sectoral differences.
    Date: 2019
  11. By: Moretti, Enrico
    Abstract: The high-tech sector is increasingly concentrated in a small number of expensive cities, with the top ten cities in "Computer Science", "Semiconductors" and "Biology and Chemistry", accounting for 70%, 79% and 59% of inventors, respectively. Why do inventors tend to locate near other inventors in the same field, despite the higher costs? I use longitudinal data on top inventors based on the universe of US patents 1971 - 2007 to quantify the productivity advantages of Silicon-Valley style clusters and their implications for the overall production of patents in the US. I relate the number of patents produced by an inventor in a year to the size of the local cluster, defined as a city * research field * year. I first study the experience of Rochester NY, whose high-tech cluster declined due to the demise of its main employer, Kodak. Due to the growth of digital photography, Kodak employment collapsed after 1996, resulting in a 49.2% decline in the size of the Rochester high-tech cluster. I test whether the change in cluster size affected the productivity of inventors outside Kodak and the photography sector. I find that between 1996 and 2007 the productivity of non-Kodak inventors in Rochester declined by 20.6% relative to inventors in other cities, conditional on inventor fixed effects. In the second part of the paper, I turn to estimates based on all the data in the sample. I find that when an inventor moves to a larger cluster she experiences significant increases in the number of patents produced and the number of citations received. Conditional on inventor, firm, and city * year effects, the elasticity of number of patents produced with respect to cluster size is 0.0662 (0.0138). The productivity increase follows the move and there is no evidence of pre-trends. IV estimates based on the geographical structure of firms with laboratories in multiple cities are statistically similar to OLS estimates. In the final part of the paper, I use the estimated elasticity of productivity with respect to cluster size to quantify the aggregate effects of geographical agglomeration on the overall production of patents in the US. I find macroeconomic benefits of clustering for the US as a whole. In a counterfactual scenario where the quality of U.S. inventors is held constant but their geographical location is changed so that all cities have the same number of inventors in each field, inventor productivity would increase in small clusters and decline in large clusters. On net, the overall number of patents produced in the US in a year would be 11.07% smaller.
    Date: 2019–09
  12. By: MORIKAWA Masayuki
    Abstract: The main objectives of a minimum wage are to ensure that low-wage workers have appropriate earnings and to reduce inequality. However, there is an active debate as to whether minimum wages improve productivity. This study presents evidence on the relationship between minimum wages and productivity using regional and firm-level panel data for Japan, where statutory minimum wages are determined at the prefecture-level and revised annually. The estimation results do not reveal evidence that an increase in minimum wages improves productivity.
    Date: 2019–09
  13. By: ARA Tomohiro
    Abstract: How different are the impacts of trade barriers on trade flows between intermediate inputs and final goods? How large are the welfare gains from trade for intermediate inputs relative to final goods? To address these questions, we develop a heterogeneous-firm model in which firm exporting and firm importing play a key role in industry productivity and welfare. We derive a gravity equation in intermediate-input trade to show that reductions in intermediate-input trade costs increase aggregate trade flows more than those in final-good trade costs, due to an extra adjustment operating through the extensive margin. We also find the general condition under which the welfare gains from trade are greater in intermediate-input trade than those in final-good trade.
    Date: 2019–08
  14. By: Hazan, Moshe; Tsur, Shay
    Abstract: We analyze differences in labor productivity between Israel and a group of small OECD countries. We assume a more general human capital production function and calibrate it using PIAAC surveys, which examine the literacy and numeracy skills of the adult population in the OECD countries. Whereas Israel has more years of schooling, its population has lower measured skills. Using development accounting exercise, we show that once years of schooling and numeracy skills are taken into account, differences in accumulated factors explain more than three-quarters of the gap. This is against a split of 60-40 between accumulated factors and total factor productivity, when these skills are ignored. Additionally, using panel data on 13 OECD countries we show strong positive correlation between physical and human capital per worker at the industry level. A causal interpretation of our estimates implies that closing the gap in skills will indirectly close 18 percent of the gap in physical capital.
    Keywords: Development accounting; Human Capital; labor productivity; Physical Capital; PIAAC
    Date: 2019–09

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