Marginal values and returns to scale for nonparametric production frontiers

We present a unifying linear programming approach to the calculation of various directional derivatives for a very large class of production frontiers of data envelopment analysis (DEA). Special cases of this include different marginal rates, the scale elasticity and a spectrum of partial and mixed elasticity measures. Our development applies to any polyhedral production technology including, to name a few, the conventional variable and constant returns-to-scale DEA technologies, their extensions with weight restrictions, technolo gies with weakly disposable undesirable outputs and network DEA models. Furthermore, our development provides a general method for the characterization of returns to scale (RTS) in any polyhedral technology. The new approach effectively removes the need to develop bespoke models for the RTS characterization and calculation of marginal rates and elasticity measures for each particular technology

Improving resource allocation and incomes in Vietnamese agriculture

This paper uses data collected in an extensive survey of farm costs in the Dong Nai River Basin of Vietnam to estimate the parameters of production functions for rice, vegetables, and coffee. These estimates are then combined with price information to estimate marginal value products for irrigation, fertilizer, labor, and other farm inputs. Comparing marginal value products of the various inputs across crops and with factor prices suggests there may be potential for improving resource allocation and farm incomes. One novel contribution is the consideration of water and irrigation—a concern of considerable interest amidst rising water scarcity in the region. Most notably, the results indicate that fertilizer is the primary constraint to increased yields and farm income. Across all crops the marginal return to phosphorous, for example, ranges from 6,000–20,000 Vietnamese dong (VND) (US$1 = VND1, 800).Making similar comparisons with irrigation water suggests there is potential for improving resource allocation by diverting water from vegetables and coffee toward rice production. The marginal return to irrigation water for rice production is VND 2,500. For coffee and vegetables, marginal returns are negative. For vegetables, preliminary evidence suggests that all irrigation water is not created equal—groundwater and sprinkler irrigation systems have marginal physical products more than double that of traditional sources.Dong Nai basin, farm input allocation, irrigation efficiency, translog production function, water allocation policy,

Greenhouse gas emissions and the productivity growth of electricity generators

This paper analyses electricity generation in four Australian states and the Northern Territory in the late 1990s It finds that productivity growth estimates for electricity generators can change significantly when allowance is made for greenhouse gas emissions. Using an innovative analytical technique for incorporating environmental impacts in productivity estimates, it shows that productivity growth is overestimated when emission intensity is rising and underestimated when emission intensity is falling. This is because emissions are undesirable and so if they fall (grow) per unit of output then this will tend to increase (decrease) estimated productivity.greenhouse gas emissions - productivity growth - electricity - abatement

Using data envelopment analysis for the efficiency and elasticity evaluation of agricultural farms

Data Envelopment Analysis (DEA) is a well-established relative efficiency measurement technique, which has been widely applied to evaluate the technical efficiency of agricultural units in different countries by focusing on different aspects of agricultural production. This research deals with the evaluation of efficiency through DEA in non-homogeneous agricultural production, where units produce a wide range of different outputs. The objectives are threefold. Firstly, we propose a novel methodological approach of integrating the production trade-offs concept of DEA into non-homogeneous agricultural efficiency evaluation to prevent the overstatement of the efficiency of specialist farms and overcome the issue of insufficient discrimination due to large number of outputs in the models. Secondly, we aim to integrate this methodological perspective to the theory of elasticity measurement on DEA frontiers. The efficient frontiers of DEA are not defined in functional forms as in the classical economic theory, therefore obtaining elasticity measures on them require different considerations. We introduce the production trade-offs to the elasticity measurement and derive the necessary models to calculate the elasticities of response in the presence of production trade-offs. As a third objective, before moving to the introduction of the trade-offs in elasticity measurement, for theoretical completeness, we first consider the elasticity measurement on DEA frontiers of constant returns-to-scale (CRS) technologies. Our proposed methodology and all the developed elasticity theory are illustrated in a real world case of Turkish agricultural sectors. We provide extensive empirical applications covering all the proposed theory and methodology. Among the results of this research, we provide an elasticity measurement framework, which enables us to calculate elasticities of response measures in both VRS and CRS technologies, with or without production tradeoffs included. We observe that the integration of production trade-offs provide better discrimination of efficiency scores compared to the models without trade-offs included. We also investigate how changing production trade-offs affect the efficiency and elasticity measures of the evaluated units

Are African manufacturing firms really inefficient? Evidence from firm-level panel data

Three dimensions of the performance of firms in Ghana’s manufacturing sector are investigated in this paper: their technology and the importance of technical and allocative efficiency. We show that the diversity of factor choices is not due to a non-homothetic technology. Observable skills are not quantitatively important as determinants of productivity. Technical inefficiency is not lower in firms with foreign ownership or older firms and its dispersion across firms is similar to that found in other economies. Large firms face far higher relative labour costs than small firms. If these factor market distortions could be removed substantial gains thorough improvements in allocative efficiency would be possible.African manufacturing, productivity, efficiency, firm size.

On competition and school efficiency

Education

Estimating elasticities of input substitution using data envelopment analysis

Master of ScienceAgricultural EconomicsJason S. BergtoldThe use of elasticities of substitution between inputs has become the standard method for addressing the effect of a change in the mix of input used for production from a technological or cost standpoint. (Chambers 1988) A researcher that wants to estimate this elasticity, or some other comparative static, typically would do so using parametric production or cost function (e.g. translog or normalized quadratic) with panel data. For a study with only cross-sectional data, the construction of such a function may be problematic. Using a dual approach, a nonparametric alternative in such a situation may be the use of Data Envelopment Analysis (DEA). Cooper et al. (2000) provided a methodology for estimating elasticities of substitution for the technical production problem using DEA. To our knowledge, this has not been extended to the cost efficiency problem, which would be equivalent to estimating Allen partial or Morishima elasticities of substitution between inputs using a cost function (or cost minimization framework). The purpose of this thesis is to show how elasticities of substitution can be derived and estimated for the technical production and cost (overall economic) efficiency DEA under variable returns to scale. In addition, an empirical example using Kansas Farm Management Association (KFMA) data is presented to illustrate the estimation of these elasticities. The results showed that input substitutability is relatively limited at the enterprise leve

How"natural"are natural monopolies in the water supply and sewerage sector ? Case studies from developing and transition economies

Using data from the International Benchmarking NETwork database, the authors estimate measures of density and scale economies in the water industry in four countries (Brazil, Colombia, Moldova, and Vietnam) that differ substantially in economic development, piped water and sewerage coverage, and characteristics of the utilities operating in the different countries. They find evidence of economies of scale in Colombia, Moldova, and Vietnam, implying the existence of a natural monopoly. In Brazil the authors cannot reject the null hypothesis of constant returns to scale. They also find evidence of economies of customer density in Moldova and Vietnam. The results of this study show that the cost structure of the water and wastewater sector varies significantly between countries and within countries, and over time, which has implications for how to regulate the sector.Town Water Supply and Sanitation,Urban Water Supply and Sanitation,Economic Theory&Research,Water and Industry,Water Supply and Sanitation Governance and Institutions

Productivity, efficiency and competition of UK depository institutions.

In the thesis, a number of cost characteristics of the UK building society and retail banking sectors are estimated using econometric techniques. The cost characteristics considered broadly fall into the three areas of productivity, efficiency and competitiveness. The study was undertaken with the aim of considering both the magnitude and degree of change in these cost characteristics over time. This assessment is deemed to be important due to the wide-ranging changes in the regulatory, institutional and market environment of both these sectors. For reasons of structure and clarity, the thesis is divided into two parts. The first part of the thesis provides a broad discussion of the operating environment, the model specification, variable definition, the concept of efficiency, econometric techniques, previous literature and the form of the statistics used to measure the relevant economic characteristics. The second part of the thesis contains the empirical studies in which economic characteristics are estimated. Cost efficiency is measured for both the retail banking and building society sectors using differing model forms and distinct functional forms. Fixed effects panel data techniques are employed in both studies. Both model specification and functional forms are deemed to influence the estimates produced. It is discovered that both sectors experience a degree of cost efficiency dispersion. Measures of economies of scale and product mix are also estimated with positive economies of scale and constant returns to scale found in the retail bank and building society sectors, respectively. The findings from the analysis of economies of product mix are less than clear. Nevertheless, it may be stated that the re-regulation which allowed a greater degree of product diversification in the building society sector appears to be justified in terms of cost efficiency. Very low levels of technical change and total factor productivity growth are found for both sectors. The degree of competitiveness of the building society sector was assessed using a revenue function approach. The results suggest that both retail banks and building societies operate in markets characterised by a moderate degree of monopolistic competition

PARAMETRIC DECOMPOSITION OF OUTPUT GROWTH

This paper proposes a tractable approach for analyzing the sources of TFP changes (i.e., technical change, changes in technical and allocative inefficiency, and the scale effect) in a multi-output setting, while retaining the single-equation nature of the econometric procedure used to estimate the parameters of the underlying technology. The proposed approach relies on Bauer’s cost function based decomposition of TFP changes and the duality between input distance and cost functions. The empirical results are based on a sample of 121 UK livestock farms observed over the period 1983-92 and a translog input distance function. It is found that improvements in technical efficiency appear to provide greater potential for enhancing farm returns than that which may be obtained from shifting the production frontier itself. In addition, scale economies and allocative inefficiency are also important sources for TFP changes on UK livestock farms.Cost function based decomposition of TFP, input distance function; UK livestock farms