Productivity change using growth accounting and frontier-based approaches – Evidence from a Monte Carlo analysis

This study presents some quantitative evidence from a number of simulation experiments on the accuracy of the productivity growth estimates derived from growth accounting (GA) and frontier-based methods (namely Data envelopment Analysis-, Corrected ordinary least squares-, and Stochastic Frontier Analysis-based Malmquist indices) under various conditions. These include the presence of technical inefficiency, measurement error, misspecification of the production function (for the GA and parametric approaches) and increased input and price volatility from one period to the next. The study finds that the frontier-based methods usually outperform GA, but the overall performance varies by experiment. Parametric approaches generally perform best when there is no functional form misspecification, but their accuracy greatly diminishes otherwise. The results also show that the deterministic approaches perform adequately even under conditions of (modest) measurement error and when measurement error becomes larger, the accuracy of all approaches (including stochastic approaches) deteriorates rapidly, to the point that their estimates could be considered unreliable for policy purposes.

Comparative performance analysis of portuguese bank branches

The advent of Internet banking and phone banking is changing the role of bank branches from a predominantly transaction-based one to a sales-oriented role. This paper reports on an assessment of the branches of a Portuguese bank in terms of their performance in their new roles in three different areas: Their effectiveness in fostering the use of new transaction channels such as the internet and the telephone, their effectiveness in increasing sales and their customer base, and their effectiveness in generating profits without compromising the quality of service. We have used Data Envelopment Analysis for the assessment, departing from the basic models to accommodate non-radial and nonoriented measures of performance

Guiding schools to improved performance using data envelopment analysis:an illustration with data from a local education authority

The educational process is characterised by multiple outcomes such as the achievement of academic results of various standards and non-academic achievements. This paper shows how data envelopment analysis (DEA) can be used to guide secondary schools to improved performance through role-model identification and target setting in a way which recognises the multi-outcome nature of the education process and reflects the relative desirability of improving individual outcomes. The approach presented in the paper draws from a DEA-based assessment of the schools of a local education authority carried out by the authors. Data from that assessment are used to illustrate the approach presented in the paper. (Key words: Data envelopment analysis, education, target setting.

Comparative efficiency analysis of Portuguese bank branches

The advent of Internet banking and phone banking is changing the role of bank branches from a predominantly transaction- based one to a sales-oriented role. This paper reports on an assessment of the branches of a Portuguese bank in terms of their performance in their new roles in three different areas: Their efficiency in fostering the use of new transaction channels, their efficiency in increasing sales and their customer base, and their efficiency in generating profits. Service quality is also a major issue in service organisations like bank branches, and therefore we analyse the way this dimension of performance has been accounted for in the literature and take it into account in our empirical application. We have used data envelopment analysis (DEA) for the different performance assessments, but we depart from traditional DEA models in some cases. Performance comparisons on each dimension allowed us to identify benchmark bank branches and also problematic bank branches. In addition, we found positive links between operational and profit efficiency and also between transactional and operational efficiency. Service quality is positively related with operational and profit efficiency

School outcomes: Sharing the responsibility between pupil and school

This paper uses a Data Envelopment Analysis based approach to decompose pupil under-attainment into that attributable to the school the pupil attends and that attributable to the pupil. The approach measures pupil attainment in terms of value added. Data on over 6700 A-level pupils from 122 English schools have been analysed. The results suggest that at current levels of school effectiveness a pupil’s own application accounts for the major part of any under-attainment, though schools also have scope to improve their effectiveness. The approach also makes it possible to identify target attainment levels a pupil could be set and the extent to which the attainment of those targets necessitates an improvement in the effectiveness of the school the pupil attends and in the pupil’s own efforts

DEA and its use in the regulation of water companies

This paper begins with an introduction to the basic principles of data envelopment analysis (DEA). DEA is a linear programming-based method for assessing the productive efficiencies of operating units such as bank branches, sales outlets, schools or individuals. This paper then goes on to describe the use of DEA in the regulatory framework. Regulation, employed to safeguard the public interest, is increasingly playing an major role in Great Britain and other countries in the aftermath of the privatisation of publicly owned companies including utilities which still enjoy a good degree of monopoly power. This paper gives an account of the use of DEA to estimate potential cost savings at water companies in the context of the price review conducted by the regulator of water companies in England and Wales in 1994. It also highlights certain generic issues arising in the use of DEA in the regulatory context. This paper should prove of interest both to those who want to know about DEA as a tool in general and to those interested in efficiency measurement under regulation

Use of data envelopment analysis in the regulation of UK water utilities:Water distribution

Regulation is increasingly playing a major role in defence of the public interest in the UK and other economies, in the aftermath of the privatization of utilities operating in near monopoly environments. This paper gives an account of the use of data envelopment analysis (DEA) by the regulator of water companies in England and Wales in 1994 in the context of setting price limits. DEA is a general purpose linear programming-based method for assessing the productive efficiencies of operating units such as bank branches or schools. The paper details the use of DEA to estimate potential savings in the specific context of water distribution and discusses the use of the results obtained. It also highlights certain generic issues arising in the use of DEA and more generally performance measurement methods in the regulatory context

Comparative Efficiency Analysis of Referral Costs in

The aim of this paper is to compare English General Practitioner (GP) units in terms of their overall referral costs through Data Envelopment Analysis (DEA). Results revealed potential cost savings and benchmark practices under 4 perspectives: ‘overall cost efficiency’, ‘technical efficiency’, ‘allocative efficiency’, and ‘price efficiency’

A DEA-based incentives system for centrally managed multi-unit organisations

In multi-unit organisations such as a bank and its branches or a national body delivering publicly funded health or education services through local operating units, the need arises to incentivize the units to operate efficiently. In such instances, it is generally accepted that units found to be inefficient can be encouraged to make efficiency savings. However, units which are found to be efficient need to be incentivized in a different manner. It has been suggested that efficient units could be incentivized by some reward compatible with the level to which their attainment exceeds that of the best of the rest, normally referred to as “super-efficiency”. A recent approach to this issue (Varmaz et. al. 2013) has used Data Envelopment Analysis (DEA) models to measure the super-efficiency of the whole system of operating units with and without the involvement of each unit in turn in order to provide incentives. We identify shortcomings in this approach and use it as a starting point to develop a new DEA-based system for incentivizing operating units to operate efficiently for the benefit of the aggregate system of units. Data from a small German retail bank is used to illustrate our method

Regulatory price performance, excess cost indexes and profitability:how effective is price cap regulation in the water industry?

In this study we apply an index number approach to allow for cross sectional comparisons of relative profitability, productivity and price performance of the regulated Water and Sewerage companies (WaSCs) in England and Wales during the years 1991-2008. In order to better analyse the impact of regulation on WaSC performance, we decompose actual economic profits into spatial multilateral Fisher productivity (TFP) index, the inverse of which is demonstrated to be a regulatory excess cost index that measures the deviation of a firm’s actual costs from benchmark costs, and a newly developed regulatory total price performance (TPP) index, which measures the excess of regulated revenues relative to benchmark costs. Increases (decreases) in regulatory price performance are indicative of the loosening (tightening) of price cap regulation. Moreover, we also show that the relationship between actual economic profitability, regulatory excess costs and regulatory price performance indices can be used to categorize regulatory price caps as “weak”, “powerful” or “catch-up promoting”. The results indicated that throughout the entire 1991-2008 period, price caps were never “powerful”, in the sense that they required less productive firms to immediately and fully catch-up to the most productive firm to regain economic profitability. More specifically, during the years 1991-2000 price caps were “weak” as prices were high enough for the firms to achieve economic profits despite their low productivity levels. However, after 2001 prices became “catch up promoting” as they required less productive companies to eliminate at least some excess costs in order to eliminate economic losses. Finally, we emphasize that as our results also clearly demonstrated a much closer alignment between allowed revenues and benchmark costs after 2001, Ofwat’s approach during this period was not only appropriate, but should also be continued in the 2009 price review