Emili Grifell-Tatjé & C. A. Knox Lovell, Productivity Accounting: The Economics of Business Performance

Book Revie

Testing the product test

The product test asks the product of a quantity index number and a price index number to equal the corresponding value change. The literature treats the product test as being so important that it is used to identify acceptable index number pairs, and to construct implicit index numbers when an otherwise desirable pair fails the test. We treat the product test as a hypothesis to be tested, and we provide an empirical application

Regulatory Incentives to Water Losses Reduction: The Case of England and Wales

In recent years, England and Wales have suffered droughts. This unusual situation defies the common belief that the British climate provides abundant water resources and has prompted the regulatory authorities to impose bans on superfluous uses of water. Furthermore, a large percentage of households in England consume unmetered water which is detrimental to water saving efforts. Given this context, we estimate the shadow price of water using a panel data from reports published by the Office of Water Services (Ofwat) for the period 1996 to 2010 (three regulatory periods). These shadow prices are derived from a parametric multi-output multi-input input distance function characterized by a translog technology. Following O'Donnell and Coelli (2005), we use a Bayesian econometric framework in order to impose regularity – monotonicity and curvature – conditions on a high-flexible technology. Consequently, our results can be interpreted at the firm level without requiring the need to base analysis on the averages. Our estimations offer guidance for regulation purposes and provide an assessment of how the water supply companies deal with water losses under each regulatory period. The relevance of the study is quite general as water scarcity is a problem that will become more important with population growth and the impact of climate change

Capturing heterogeneity in electricity distribution operations: a critical review of latent class modelling

Recently, several articles (Cullmann, 2012; Agrell et al., 2014; Filippini and Orea, 2014; Llorca et al., 2014) address the issue of benchmarking decision making units with different technologies by using latent class models. This method groups units that have similar technology for better comparison. Under this scheme, there are two implicit assumptions: First, that each class reflects a unique technology where its elements are not outliers. Second, classes are assumed to be stationary and fixed. If this assumption is violated, the classification is transient and time-dependent, inadequate for the regulatory use suggested in the seminal papers. We apply latent class models to classify Swedish electricity distributors under different specifications. In most of the models, we identify one large class with approximately 78.4% of the DMU's and two small classes with 7.4% and 14.2% respectively. Moreover, most of small classes elements switch between categories. We contrast our parametric results with nonparametric outlier detector methods and find a relationship between identified outliers and the elements of smaller residual classes. We believe that our work is an important caveat to the adoption of latent class modelling as an alternative or remedy for conventional models, relying on a homogeneous reference set

Business Model Evaluation: Quantifying Walmart’s Sources of Advantage

peer reviewedWe develop an analytical framework on the basis of the economics of business performance to provide quantitative insight into the link between a firm's business model choices and their profit consequences. The method is applied to Walmart by building a qualitative representation of its business model and mapping that representation on an analytical model that quantifies the company's sources of advantage over time. The analysis suggests that the effectiveness of a particular business model depends not only on its design (its levers and how they relate to one another) but, most importantly, on its implementation (how the levers are pulled)