nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2020‒06‒08
thirteen papers chosen by

  1. Exploring the links between total factor productivity, final-to-useful exergy efficiency, and economic growth: Case study Portugal 1960-2014 By Santos, João; Borges, Afonso; Domingos, Tiago
  2. Procedures for Ranking, Technical and Cost Ecient Units: With a Focus on Nonconvexity By Kristiaan KERSTENS; Jafar SADEGHI; Medhi TOLOO; Ignace VAN DE WOESTYNE
  3. The Agency Problem Revisited: A Structural Analysis of Managerial Productivity and CEO Compensation in Large U.S. Commercial Banks By Liu, Shasha; Sickles, Robin
  4. The impact of financial constraints on tradable and non-tradable R&D investments in Portugal By Magalhaes, Manuela
  5. Labor Market Effects of Technology Shocks Biased Toward the Traded Sector By Luisito Bertinelli; Olivier Cardi; Romain Restout
  6. Measuring organisation capital at the firm level: A production function approach By Rammer, Christian; Roth, Felix; Trunschke, Markus
  7. The Inverted-U Relationship Between Credit Access and Productivity Growth By Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
  8. Interlocking Directorates and Competition in Banking By Guglielmo Barone; Fabiano Schivardi; Enrico Sette
  9. Spatial Effects of Nutrient Pollution on Drinking Water Production By Mosheim, Roberto; Sickles, Robin C.
  10. The Shape of Ray Average Cost and Its Role in Multioutput Scale Economies: Some Generalisations By Giovanni CESARONI; Kristiaan KERSTENS; Ignace VAN DE WOESTYNE
  11. Firm productivity dynamics and distribution: Evidence for Chile using micro data from administrative tax records By Elías Albagli; Mario Canales; Claudia de la Huerta; Matías Tapia; Juan Marcos Wlasiuk
  12. ICT and Bank Performance in Sub-Saharan Africa: A Dynamic Panel Analysis By Agu, Chinonso .V.; Aguegboh, Ekene .S.
  13. Workforce Composition, Productivity and Pay: The Role of Firms in Wage Inequality By Criscuolo, Chiara; Hijzen, Alexander; Schwellnus, Cyrille; Chen, Wen-Hao; Fabling, Richard; Fialho, Priscilla; Grabska, Katarzyna; Kambayashi, Ryo; Leidecker, Timo; Nordström Skans, Oskar; Riom, Capucine; Roth, Duncan; Stadler, Balazs; Upward, Richard; Zwysen, Wouter

  1. By: Santos, João; Borges, Afonso; Domingos, Tiago
    Abstract: Mainstream economic growth models downplay the role of energy, while attributing most of growth to an exogenous residual – total factor productivity (TFP). This makes them unsuitable to tackle the challenge of marrying sustainability and economic development targets. Meanwhile, research suggests that measuring energy at the stage where it’s actually productive (useful), and in exergy terms (in thermodynamics, the potential to do work), unlocks new insights concerning energy’s strong link with economic output. In this work we test for relationship linking TFP and final-to-useful (F-to-U) exergy efficiency, resorting to both observational and statistical methods (cointegration). Several models are considered, assessing the impact of: a) disaggregating capital inputs (i.e. buildings, stationary, non-stationary); b) quality-adjusting labour; c) disaggregating F-to-U exergy efficiency (stationary and non-stationary end-uses). Results for Portugal (1960-2014) show that TFP can be proxied by changes in F-to-U exergy efficiency, namely for stationary end-uses. This link is strengthened when disaggregate capital, and schooling-corrected labour measures are considered. When TFP is estimated as a function of F-to-U exergy efficiency, virtually all of long-term economic growth is explained by directly measurable capital, labour, and exergy efficiency in production. Resulting models provide satisfactory explanations of economic growth, founded on energy use and efficiency.
    Keywords: economic growth; total factor productivity; energy efficiency; useful exergy; aggregate production function; cointegration analysis
    JEL: C51 D24 O11 O13 O47 Q43
    Date: 2020–02–28
  2. By: Kristiaan KERSTENS (IESEG School of Management and LEM-UMR 9221); Jafar SADEGHI (IESEG School of Management and Ivey Business School); Medhi TOLOO (VSB-Technical University of Ostrava); Ignace VAN DE WOESTYNE (KU Leuven)
    Abstract: This contribution extends the literature on super-eciency by focusing on ranking cost-efficient observations. To the best of our knowledge, the focus has always been on technical super-efficiency and this focus on ranking cost-efficient observations may well open up a new topic. Furthermore, since the convexity axiom has both an impact on technical and cost eciency, we pay a particular attention on the e ect of nonconvexity on both super-efficiency notions. Apart from a numerical example, we use a secondary data set guaranteeing replication to illustrate these eciency and super-efficiency con- cepts. Two empirical conclusions emerge. First, the cost super-efficiency notion ranks di erently from the technical super-efficiency concept. Second, both cost and technical super-efficiency notions rank di erently under convex and nonconvex technologies.
    Keywords: : Data Envelopment Analysis; Free Disposal Hull; Technical Efficiency; Cost Efficiency; Super-efficiency
    JEL: D24
    Date: 2020–05
  3. By: Liu, Shasha (Freddie Mac); Sickles, Robin (Rice U)
    Abstract: The paper analyzes performance, incentives, and the inefficiencies that may arise due to agency problems and market power using a newly developed panel of large U.S. commercial banks that have too-big-to-fail nature. We use a structural model to characterize managerial efficiency, which complements technical efficiency in standard stochastic frontier models. We incorporate managerial decisions, bank-specific characteristics, and market competition in deriving managerial efficiency. Data on the 50 largest commercial banks in the U.S. during 2000 and 2017 are collected from the Call Reports, and are matched with CEO compensation from S&P's Execucomp database. The paper connects empirical evidence with economic theory and contributes to the literature on efficiency and management. The ultimate goal is to better understand the linkages among managerial performance, CEO compensation, and the size and scope of bank operations. Current results point to robust empirical findings. Economies of scale have steadily declined throughout the period, and are not positively related to managerial performance and CEO compensation. The size of a bank does not seem to be justified by the evidence in that larger banks offer larger bonuses and tend to have lower managerial efficiency and diminishing scale economies.
    JEL: C13 C33 D22 G21
    Date: 2020
  4. By: Magalhaes, Manuela
    Abstract: We develop a directed technical change model with two sectors, tradable and non-tradable, and dynamic firms’ decisions to invest in R&D in the presence of financial constraints. The model establishes a linkage between R&D decisions, product and process innovations, future productivity, profits, and credit constraints. The model is estimated using Portuguese firms’ data of the tradable and non-tradable sectors. We find that the previous R&D investments raises the innovating probabilities, the innovating probabilities are higher in the tradable sector, and the startup costs of innovation tend to be higher than the maintenance costs. The results also show complementary between the R&D benefits and the firm’s financial strength, diminishing marginal returns to capital on innovation benefits, and high heterogeneity of the innovation costs across industries. Finally, when the firms’ financial strength and the trade-off between tradable and non-tradable goods are considered, the R&D benefits in the non-tradable sector do not compensate its cost given the higher productivity and innovation probabilities of the tradable sector. As a result, the R&D investments in the tradable sector illustrates a misallocation of financial resources.
    Keywords: : Credit constraints, firm-level data, productivity, R&D, tradable and non-tradable goods.
    JEL: O31 O32
    Date: 2020–04–04
  5. By: Luisito Bertinelli (CREA, Université du Luxembourg); Olivier Cardi (Lancaster University Management School, UK); Romain Restout (Université de Lorraine (CNRS UMR 7522), Nancy, F)
    Abstract: Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the sectoral composition ef- fects of technology shocks biased toward the traded sector. Using a panel of seventeen OECD countries over the period 1970-2013, our VAR evidence reveals that a perma- nent increase in traded relative to non-traded TFP lowers the traded hours worked share by shifting labor toward the non-traded sector, and has an expansionary effect on the labor income share in both sectors. Our quantitative analysis shows that the open economy version of the neoclassical model can reproduce the reallocation and redistributive effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. Calibrating the model to country-specific data, the model can account for the cross-country dispersion in the reallocation and redistributive effects we document empirically once we let factor-biased technological change vary across sectors and between countries. Finally, we document evidence which supports our hypothesis of factor-biased technological change as we find empirically that countries where capital-intensive industries contribute more to the in- crease in traded TFP are those where capital relative to labor efficiency increases. Keywords: Sectoral technology shocks; factor-augmenting efficiency; Open economy; Labor reallocation across sectors; CES production function; Labor income share.
    Keywords: Sectoral technology shocks; factor-augmenting efficiency; Open economy;Labor reallocation across sectors; CES production function; Labor income share.
    JEL: E22 F11 F41 F43
    Date: 2019
  6. By: Rammer, Christian; Roth, Felix; Trunschke, Markus
    Abstract: Organisation capital is one of the key intangible assets of firms, driving innovation and firm performance. Measuring this asset has been notoriously difficult, however. Differently to other intangible assets, firms do not build up organisation capital primarily by monetary investment but rather through establishing new organisational routines and building up trust, which often do not coincide with any financial expenditure. Quantifying such efforts at the firm level has largely failed so far. This paper takes up a traditional production function approach which includes, in addition to labour and tangible assets, investment in all measurable intangible assets (technological and non-technological knowledge, software and databases, firm-specific human capital, brand equity), but excluding organisation capital. The residuum of the estimation is considered as a measure of a firm' organisation capital. Using panel data from the German innovation survey, we find higher organisation capital in young and small firms. Our measure tends to show a u-shaped link to qualitative indicators such as organisational innovation.
    Keywords: Organisation Capital,Production Function,CIS
    JEL: D24 E22 L25
    Date: 2020
  7. By: Philippe Aghion (Harvard University [Cambridge]); Antonin Bergeaud (PSE - Paris School of Economics); Gilbert Cette (Centre de recherche de la Banque de France - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Rémy Lecat (Centre de recherche de la Banque de France - Banque de France); Hélène Maghin
    Abstract: We identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation‐based growth with credit constraints, where the above two counteracting effects generate an inverted‐U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm‐level dataset. We first show evidence of an inverted‐U relationship between credit constraints and productivity growth when we aggregate our data at the sectoral level. We then move to firm‐level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experience lower exit rates, particularly the least productive firms among them. To support these findings, we exploit the 2012 Eurosystem's Additional Credit Claims programme as a quasi‐experiment that generated an exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: credit constraint,firms,growth,interest rate,productivity
    Date: 2019–01
  8. By: Guglielmo Barone (University of Padua); Fabiano Schivardi (Luiss University, EIEF); Enrico Sette (Bank of Italy)
    Abstract: We study the effects on loan rates of a quasi-experimental change in the Italian legislation which forbids interlocking directorates between banks. We use a difference-in-differences approach and exploit multiple banking relationships to control for unobserved heterogeneity. We find that the reform decreased rates charged by previously interlocked banks to common customers by between 10-30 basis points. The effect is stronger if the firm had a weaker bargaining power vis-a-vis the interlocked banks. Consistent with the assumption that interlocking directorates facilitate collusion, interest rates on loans from interlocked banks become more dispersed after the reform.
    Date: 2020
  9. By: Mosheim, Roberto (Economic Research Service, USDA); Sickles, Robin C. (Rice U)
    Abstract: This study explores the spatial effects in nitrogen (N) and phosphorus (P) pollution and drinking water production patterns in agriculture. Two important examples are that water utilities that deliver and treat drinking water in agricultural areas have to deal with excess nitrogen and phosphorus released to the environment by crop and livestock operations, an externality created by the agricultural sector; and, second, that the drinking water production sector in rural areas is a highly fragmented with a multitude of enterprise sizes, organization forms and network densities that have spatial components. In our analysis we present measures of N and P pollution. We employ information collected in section 303(d) of the Clean Water Act: count of impaired water bodies by N/P, and count of point source N/P pollution at the Hydrologic Unit Code 8 (HUC) or sub-basin level and estimate how these variables affect drinking water utilities scale economies, productive efficiency, and scale and scope economies.
    JEL: D24 Q53 Q57
    Date: 2020–03
  10. By: Giovanni CESARONI (Department for public administration, Prime Minister’s Office, Rome); Kristiaan KERSTENS (IESEG School of Management and LEM-UMR 9221); Ignace VAN DE WOESTYNE (KU Leuven)
    Abstract: Establishing a link between the so-called “neoclassical” and “axiomatic” approaches to production theory, we deal with some central and unresolved issues concerning scale economies in multi-output technologies. First, we reformulate Panzar and Willig’s (1977) result on the duality between primal and dual scale elasticity measures, which helps pointing out the unknown role played in this regard by the monotonicity of the local degree of homogeneity of the technology. Second, under a general representation of a convex technology - allowing for non-differentiability of the cost function and multiple optima - we determine the shape of the ray average cost function. Third, in the same setting, we determine an unambiguous relationship between cost scale elasticity and cost scale efficiency, and therefore between local and global scale economies. Fourth, we develop a complete map of values taken by primal and dual scale elasticities and point out that the equality between returns to scale and scale economies local measures breaks down in a convex technology at points where the cost function is not differentiable. These general results are then applied to simplification and solution of some theoretical and computational problems featured by some important models for the estimation of scale economies, such those of Baumol and Fisher (1978), Färe and Grosskopf (1985) and Sueyoshi (1999).
    Keywords: : Returns to scale, Scale economies, Ray average cost
    JEL: C61 D24 L25
    Date: 2020–05
  11. By: Elías Albagli; Mario Canales; Claudia de la Huerta; Matías Tapia; Juan Marcos Wlasiuk
    Abstract: Using administrative tax records for all formal Chilean firms, we compute and characterize the evolution and distribution of total factor productivity at the firm level. With data on labor, capital, and value-added, we compute TFPR measures for individual firms between 2006 and 2015, allowing for differences in factor intensities across economic sectors. Our results show that factor reallocation plays a relevant role in explaining the evolution of aggregate TFP in Chile over the last decade. Firms with higher TFPR hire more workers, have stronger capital growth, and have a larger probability of survival. However, the extent of reallocation does not prevent a large, persistent dispersion in TFPR among firms. The magnitude of this dispersion suggests that further reallocation could bring up first-order gains in aggregate productivity and output. Our results also suggest that misallocation comes mainly from distortions on the firms´ overall scale, rather than from distortions on the relative use of capital and labor.
    Date: 2019–05
  12. By: Agu, Chinonso .V.; Aguegboh, Ekene .S.
    Abstract: This paper aims at investigating the impact of information and communication technology (ICT) on bank performance in Sub-Saharan African (SSA) banking industry. The data set entails panel data for 35 Sub-Saharan African countries and we employ the system generalized method of moment (GMM) estimation technique for dynamic panel models. ICT variables understudied include: number of automated teller machines (ATMs), ATMs per 100,000 adults, ATM per 1,000 km2 and mobile money transaction; while bank performance was proxied using returns on assets (ROA), returns on earning (ROE), and net interest margin (NIM). The result reveals that ICT is negatively associated with bank performance except for ATMs per 100,000 adults and ATM per 1,000km2, which had positive impact on ROE and NIM. The findings suggest that ICT largely affects bank performance in the short run; in long run these investments become very beneficial to improving bank performance.
    Keywords: ICT, bank performance, return on assets, return on equity, net interest margin
    JEL: E44 G20 O31
    Date: 2020–05–13
  13. By: Criscuolo, Chiara (OECD); Hijzen, Alexander (OECD); Schwellnus, Cyrille (OECD); Chen, Wen-Hao (OECD); Fabling, Richard (Independent Researcher); Fialho, Priscilla (OECD); Grabska, Katarzyna (Maastricht University); Kambayashi, Ryo (Hitotsubashi University); Leidecker, Timo (OECD); Nordström Skans, Oskar (Uppsala University); Riom, Capucine (London School of Economics); Roth, Duncan (Institute for Employment Research (IAB), Nuremberg); Stadler, Balazs (OECD); Upward, Richard (University of Nottingham); Zwysen, Wouter (ISER, University of Essex)
    Abstract: In many OECD countries, low productivity growth has coincided with rising inequality. Widening wage and productivity gaps between firms may have contributed to both developments. This paper uses a new harmonised cross-country linked employer-employee dataset for 14 OECD countries to analyse the role of firms in wage inequality. The main finding is that, on average across countries, changes in the dispersion of average wages between firms explain about half of the changes in overall wage inequality. Two thirds of these changes in between-firm wage inequality are accounted for by changes in productivity-related premia that firms pay their workers above common market wages. The remaining third can be attributed to changes in workforce composition, including the sorting of high-skilled workers into high-paying firms. Over all, these results suggest that firms play an important role in explaining wage inequality as wages are driven to a significant extent by firm performance rather than being exclusively determined by workers' earnings characteristics.
    Keywords: firm wage premium, wage inequality, productivity
    JEL: D2 J31 J38
    Date: 2020–05

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