When, where and how to estimate persistent and transient efficiency in stochastic frontier panel data models

In this paper we examine robustness of a recently developed panel data stochastic frontier model that allows for both persistent and transient (also known as long-run and short-run or time-invariant and time-varying) inefficiency along with random firm-effects (heterogeneity) and noise. We address some concerns that the practitioners might have about this model. First, given that there are two random time-invariant components (persistent inefficiency and firm-effects) the concern is whether the model can accurately identify them, and if so how precisely can the model estimate them? Second, there are two time-varying random components (transient inefficiency and noise), and the concern is whether the model can separate noise from transient inefficiency, and if so how precisely can the model estimate transient inefficiency? Third, how well are persistent and transient inefficiency estimated under different scenarios, viz., under different configurations of the variance parameters of the four random components? Given that the model is quite complex, relatively new and becoming quite popular in the panel efficiency literature, we feel that there is need for a detailed simulation study to examine when, where and how one can use this model with confidence to estimate persistent and transient inefficiency. (C) 2016 Elsevier B.V. All rights reserved

Firm-Heterogeneity, Persistent and Transient Technical Inefficiency

This paper provides a new model that disentangles firm effects from persistent (time-invariant/long-term) and transient (time-varying/short-term) technical inefficiency.Bayesian analysis; Markov Chain Monte Carlo; Technical efficiency.

Endogeneity, heterogeneity, and determinants of inefficiency in Norwegian crop-producing farms

This is a PDF file of an unedited manuscript that has been accepted for publication. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.This paper addresses the endogeneity of inputs and output (which is mostly ignored in the stochastic frontier (SF) literature) in the SF panel data model under the behavioural assumption that firms maximize returns to the outlay. We consider a four component SF panel data model in which the four components are: firms' latent heterogeneity, persistent inefficiency, transient inefficiency and random shocks. Second, we include determinants in transient inefficiency. Finally, to avoid the impact of distributional assumptions in estimating the technology parameters, we apply a multi-step estimation strategy to an unbalanced panel dataset from Norwegian crop-producing farms observed from 1993 to 2014. Distributional assumptions are made in second and third steps to predict both persistent and transient inefficiency, and their marginal effects. Keywords Efficiency; Endogeneity; Returns to the outlay; Panel dataacceptedVersio

Measurement of energy efficiency based on economic foundations

Energy efficiency policy is seen as a very important activity by almost all policy makers. In practical energy policy analysis, the typical indicator used as a proxy for energy efficiency is energy intensity. However, this simple indicator is not necessarily an accurate measure given changes in energy intensity are a function of changes in several factors as well as ‘true’ energy efficiency; hence, it is difficult to make conclusions for energy policy based upon simple energy intensity measures. Related to this , some published academic papers over the last few years have attempted to use empirical methods to measure the efficient use of energy based on the economic theory of production. However, these studies do not generally provide a systematic discussion of the theoretical basis nor the possible parametric empirical approaches that are available for estimat ing the level of energy efficiency. The objective of this paper, therefore, is to sketch out and explain from an economic perspective the theoretical framework as well as the empirical methods for measuring the level of energy efficiency . Addit ionally, in the second part of the paper, some of the empirical studies that have attempted to measure the energy efficiency using such an economics approach are summarised and discussed

Una comparación entre países del rendimiento de los sistemas de producción porcina: Evidencia de los países de la UE

[EN] This study estimates and analyze the technical efficiency of pork farms from five EU countries. The Generalized True Random-effects (GTRE) model was used to differentiate between persistent and transitory technical efficiency. The results show that elasticities are robust to various specifications. Spanish farms show the highest average efficiency score. In Denmark, Germany, France, and Poland, the most significant opportunities for growth are found in transitional efficiency. The degree of productive specialization in the five countries has a positive impact in the efficiency. In Denmark, Germany, and France, persistent efficiency has a positive association with the fraction of paid labor.[ES] Este estudio estima y analiza la eficiencia técnica de explotaciones porcinas de cinco países de la UE. Se utilizó el modelo de Efectos Aleatorios Verdaderos Generalizados (GTRE) para diferenciar entre eficiencia técnica persistente y transitoria. Los resultados muestran que las elasticidades son robustas a varios tipos de especificaciones. Las explotaciones españolas presentan la eficiencia técnica más alta. En Dinamarca, Alemania, Francia y Polonia, las mayores oportunidades de crecimiento se encuentran en eficiencia transitoria. La especialización productiva en los cinco países tiene un impacto positivo en la eficiencia técnica. En Dinamarca, Alemania y Francia, la eficiencia persistente se relaciona positivamente con la fracción de mano de obra asalariada.Troncoso, R.; Cabas, J.; Guesmi, B.; Gil, JM. (2023). A cross-country comparison of pig production systems performance: Evidence from EU countries. Economía Agraria y Recursos Naturales - Agricultural and Resource Economics. 23(2):5-27. https://doi.org/10.7201/earn.2023.02.0152723

On the efficiency of toll motorway companies in Spain

This paper uses stochastic frontier analyses to estimate the cost efficiency of toll motorway companies in Spain, disentangling between two types of efficiency: persistent efficiency, related to project building and sunk costs, and transient efficiency, more closely related to management efficiency. The differences between the two sources of efficiency are significant, allowing us to test how different regulations impact performance. We find that regional governments grant more efficient projects than those granted by central government, but we do not find significant differences in performance in relation to the public/private ownership share, following the privatization of publicly owned concessionaires or due to changes in price updating regulations (price cap). The motorways nationalized in the 1980s had lower persistent efficiency levels, while management seems to have had a limited role in promoting efficiency gains. Furthermore, our results support the existence of scale and density economies in Spain, showing that an increase in vehicle-kilometers is more important than extending the motorway

State-Level Electricity Generation Efficiency: Do Restructuring and Regulatory Institutions Matter in the US?

This paper examines the impact of deregulation and the political support for it on the electric power industry using a consistent state-level electricity generation dataset for the US contiguous states from 1997-2014. Recent analyses of productivity growth suggests that institutional factors are important and we wish to study the role of deregulation as a statelevel institutional change through two measures: (a) restructuring and (b) the political support for it, measured by the majority political affiliation of public utility commissions. We find evidence of positive impacts of deregulation (both restructuring and the political support for it) on technical efficiency across the models estimated. Our preferred model which allows for the control for deregulation variables on the mean and variance of the inefficiency shows an average technical efficiency of 73.1 percent. The results of the marginal effects reveal that the impact of deregulation including its political support on inefficiency is negative and monotonic, with the potential reduction of 8.4 percent in the mean of technical inefficiency, thereby suggesting a compelling evidence for generation efficiency improvement via deregulation

Panel Stochastic Frontier Model With Endogenous Inputs and Correlated Random Components

In this article, we consider a panel stochastic frontier model in which the composite error term εit has four components, that is, εit=τi−ηi+vit−uit, where ηi and uit are persistent and transient inefficiency components, τi consists of the random firm effects and vit is the random noise. Two distinguishing features of the proposed model are (i) the inputs are allowed to be correlated with one or more of the error components in the production function; (ii) time-invariant and time-varying components, that is, (τi−ηi) and (vit−uit), are allowed to be correlated. To keep the formulation general, we do not specify whether this correlation comes from the correlations between (i) ηi and uit, (ii) τi and uit, (iii) τi and vit, (iv) ηi and vit, or some other combination of them. Further, we also consider the case when the correlation in the composite error arises from the time dependence of εit. To estimate the model parameters and predict (in)efficiency, we propose a two-step procedure. In the first step, either the within or the first difference transformation that eliminates the time-invariant components is proposed. We then use either the 2SLS or the GMM approach to obtain unbiased and consistent estimators of the parameters in the frontier function, except for the intercept. In the second step, the maximum simulated likelihood method is used to estimate the parameters associated with the distributions of τi and vit, ηi and uit as well as the intercept. The copula approach is used in this step to model the dependence between the time-varying and time-invariant components. Formulas to predict transient and persistent (in)efficiency are also derived. Finally, results from both simulated and real data are provided.publishedVersio

Energy Intensity and Long- and Short-Term Efficiency in US Manufacturing Industry

We analyze energy use efficiency of manufacturing industries in US manufacturing over five decades from 1960 to 2011. We apply a 4-component stochastic frontier model, which allows disentangling efficiency into a short- and long-term efficiency as well as accounting for industry heterogeneity. The data come from NBER-CES Manufacturing Industry Database. We find that relative to decade-specific frontiers, the overall efficiency of manufacturing industries, which is a product of transient and persistent efficiencies has deteriorated greatly in the 1970s and rebounded only in the 2000s. The industries are very efficient in the short-term and this has not changed over five decades. The high level of overall inefficiency is almost completely due to the structural inefficiency which can be explained by what is referred to as the “energy paradox”. Finally, higher energy-intensive industries perform worse in terms of energy use efficiency than their low energy-intensity counterparts.publishedVersio