Cost Constrained Industry Inefficiency

In this paper a definition of industry inefficiency in cost constrained production environments is introduced. This definition uses the indirect directional distance function and quantifies the inefficiency of the industry in terms of the overall output loss, given the industry cost budget. The industry inefficiency indicator is then decomposed into sources components: reallocation inefficiency arising from sub-optimal configuration of the industry; firm inefficiency arising from a failure to select optimal input quantities (given the prevalent inputs prices); firm inefficiency due to lack of best practices. The method is illustrated using data on Ontario electricity distributors. These data show that lack of best practices is only a minor component of the overall inefficiency of the industry (less than 10 percent), with reallocation inefficiency accounting for more than 75 percent of the overall inefficiency of the system. An analysis based on counter-factual input prices is conducted in order to illustrate how the model can be used to estimate the effects of a change in the regulation regime

Market liberalization in the European Natural Gas Market The importance of capacity constraints and efficiency differences

In the European Union, energy markets are increasingly being liberalized. A case in point is the European natural gas industry. The general expectation is that more competition will lead to lower prices and higher volumes, and hence higher welfare. This paper indicates that this might not happen for at least two reasons. First, energy markets, including the market for natural gas, are characterized by imperfect competition and increasing costs to develop new energy sources. As a result, new entrants in the market are less efficient than incumbent firms. Second, energy markets, again including the market for natural gas, are associated with capacity constraints. Prices are determined in residual markets where the least efficient firms are active. This is likely to lead to price increases, rather than decreases.natural gas, capacity constraints, efficiency, market liberalization

SUSTAINABLE EFFICIENCY OF FIRMS WHEN NEW SUSTAINABILITY TARGETS ARE INTRODUCED

There is a high potential for simultaneously increasing sustainability of the earth system and economic development by removing inefficiencies currently present both at the production input and output side. In this paper a static view on sustainability is employed, by introducing capacity constraints as the boundaries above (or below) which the system cannot maintain its stable state. Currently these capacity constraints are often not respected. In this paper it is shown how the efficiency improvement pathway of an industry and the firms within it can be calculated to come to a sustainable, profit maximizing state, given the existence of these capacity constraints.Efficiency analysis, sustainability, DEA, directional distance vectors, Resource /Energy Economics and Policy,

Market Liberalization in the European Natural Gas Market - The Importance of Capacity Constraints and Efficiency Differences

In the European Union, energy markets are increasingly being liberalized. A case in point is the European natural gas industry. The general expectation is that more competition will lead to lower prices and higher volumes, and hence higher welfare. This paper indicates that this might not happen for at least two reasons. First, energy markets, including the market for natural gas, are characterized by imperfect competition and increasing costs to develop new energy sources. As a result, new entrants in the market are less efficient than incumbent firms. Second, energy markets, again including the market for natural gas, are associated with capacity constraints. Prices are determined in residual markets where the least efficient firms are active. This is likely to lead to price increases, rather than decreases.

Micro-economic Analysis of the Physical Constrained Markets: Game Theory Application to Competitive Electricity Markets

Competition has been introduced in the electricity markets with the goal of reducing prices and improving efficiency. The basic idea which stays behind this choice is that, in competitive markets, a greater quantity of the good is exchanged at a lower and a lower price, leading to higher market efficiency. Electricity markets are pretty different from other commodities mainly due to the physical constraints related to the network structure that may impact the market performance. The network structure of the system on which the economic transactions need to be undertaken poses strict physical and operational constraints. Strategic interactions among producers that game the market with the objective of maximizing their producer surplus must be taken into account when modeling competitive electricity markets. The physical constraints, specific of the electricity markets, provide additional opportunity of gaming to the market players. Game theory provides a tool to model such a context. This paper discussed the application of game theory to physical constrained electricity markets with the goal of providing tools for assessing the market performance and pinpointing the critical network constraints that may impact the market efficiency. The basic models of game theory specifically designed to represent the electricity markets will be presented. IEEE30 bus test system of the constrained electricity market will be discussed to show the network impacts on the market performances in presence of strategic bidding behavior of the producers.Comment: Accepted for publication in the European Journal of Physics B. Presented at the Int. Conf. NEXT-SigmaPhi, 13-18 August 2005, Cret

How a regulatory capital requirement affects banks' productivity: an application to emerging economies

© 2015, Springer Science+Business Media New York. This paper presents a novel approach to measure efficiency and productivity decomposition in the banking systems of emerging economies with a special focus on the role of equity capital. We model the requirement to hold levels of a fixed input, i.e. equity, above the long run equilibrium level or, alternatively, to achieve a target equity-asset ratio. To capture the effect of this under-leveraging, we allow the banking system to operate in an uneconomic region of the technology. Productivity decomposition is developed to include exogenous factors such as policy constraints. We use a panel data set of banks in emerging economies during the financial upheaval period of 2005–2008 to analyse these ideas. Results indicate the importance of the capital constraint in the decomposition of productivity

A primer on the MFA maze

It is generally agreed that the arrangements that have regulated trade in textiles and clothing have slowed the natural shift in comparative advantage from industrial countries to developing countries. But there is quite a bit of disagreement about how restrictive the Multi-Fibre Agreements (MFA) are. The authors address the potential sources of allocative inefficiency occasioned by the MFA and search for evidence that the MFA has indeed led to such inefficiency. In a theoretical section, they identify five sources of inefficiency relating to allocations across countries, across consumers, and among firms within constrained countries. In the empirical part of the paper, first they provide evidence of the restrictiveness of the quota arrangements from trends in import shares for aggregate categories of textiles and clothing, before and during the MFA. Then they provide evidence from a detailed examination of quota utilization rates and price differentials among EC importing countries. Among their findings: relatively high utilization rates across exporters suggest a relatively high degree (and stability) of quota bindingness across exporters; overshipment was highest for the most important (by shipment value) products; there is concentration among a few leading exports (China, Hong Kong, Taiwan, and Thailand) and a few importers (Benelux, Germany, and the United Kingdom); the data suggest a positive correlation between the coefficients of variation in prices and quota utilization rates for China, Hong Kong, and Korea suggesting that prices are related, as one would expect, to the degree of bindingness; and the data suggest that binding quotas would be associated with higher import prices.Economic Theory&Research,Environmental Economics&Policies,Markets and Market Access,Access to Markets,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Chance-Constrained Efficiency Analysis

Data envelopment analysis (DEA) is extended to the case of stochastic inputs and outputs through the use of chance-constrained programming. The chance-constrained envelope envelops a given set of observations "most of the time." We show that the chance-constrained enveloping process leads to the definition of a conventional (certainty-equivalent) efficiency ratio (a ratio between weighted outputs and weighted inputs). Furthermore, extending the concept of Pareto and Koopmans efficiency to the case of chance-constrained dominance (to be defined), we establish the identity of the following two chance-constrained efficiency concepts: (i) the chance constrained DEA efficiency measure of a particular output-input point is unity, and all chance-constraints are binding; (ii) the point is efficient in the sense Pareto and Koopmans. Finally we discuss the implications of our approach for econometric frontier analysis.IC2 Institut

RECENT APPLICATIONS OF NONPARAMETRIC PROGRAMMING METHODS

Research Methods/ Statistical Methods,