Generalized Quadratic Revenue Functions

In this paper we focus on specification of revenue functions in their dual price space. We consider two distance functions, both dual to the revenue function: Shephard output distance function and the directional output distance function, both in price space. The former is multiplicative, satisfying homogeneity, the latter is additive satisfying transitivity. Functional equation methods yield translog specification for the Shephard case and quadratic for the directional case. Monte Carlo evidence suggests that the quadratic specification more precisely represents technology.

Generalized quadratic revenue functions

In this paper we focus on specification of revenue functions in their dual price space. We consider two distance functions, both dual to the revenue function: Shephard output distance function and the directional output distance function, both in price space. The former is multiplicative, satisfying homogeneity, the latter is additive satisfying transitivity. Functional equation methods yield translog specification for the Shephard case and quadratic for the directional case. Monte Carlo evidence suggests that the quadratic specification more precisely represents technology

Revisiting the quiet life hypothesis in banking using nonparametric techniques

Early studies testing the quiet life hypothesis in banking found strong evidence that banks in more concentrated markets exhibit lower cost efficiency levels. More recent studies have reexamined the issue in different contexts with mixed results. These approaches are based on stipulating a linear relationship between market power and efficiency in banking, which might be problematic, as suggested by the literature on efficiency analysis. We explore how bank cost efficiency measures are related to market power using flexible techniques, which are more consistent with those employed to measure efficiency in the first stage of the analysis. Our study focuses on the Spanish banking industry, which has been experiencing substantial change in the last few years, combining institutions with different ownership structures and business models. Results show that the relationship varies according to the level of market power, the component of efficiency evaluated (cost, technical or allocative) and the type of banking firm (commercial bank or savings bank), suggesting that the quiet life might be a reality only for some financial institutions

A Directional Distance Function Approach to Void the Non-Archimedean in DEA

Over the past years, the data envelopment analysis (DEA) methodology has registered widespread use among researchers from many fields. Furthermore, it is important to note that the non-Archimedean infinitesimal, $\epsilon$, is a key concept in DEA models. Nevertheless, it is known that some computational difficulties arise when using $\epsilon$ in DEA. In this short communication, we show how the non-Archimedean may be voided using a directional distance function approach. Thus, our approach avoids choosing a real number ($10^{-5}$ or $10^{-6}$) as a value for $\epsilon$ or estimating the same

Directional output distance functions: endogenous directions based on exogenous normalization constraints

In response to a question raised by Knox Lovell, we develop a method for estimating directional output distance functions with endogenously determined direction vectors based on exogenous normalization constraints. This is reminiscent of the Russell measure proposed by Färe and Lovell (J Econ Theory 19:150–162, 1978). Moreover it is related to the slacks-based directional distance function introduced by Färe and Grosskopf (Eur J Oper Res 200:320–322, 2010a, Eur J Oper Res 206:702, 2010b). Here we show how to use the slacks-based function to estimate the optimal directions.Keywords: Directional distance functions, Slack-based measures, DE

Technical change and pollution abatement costs

There is continuing interest in the trend of costs associated with pollution abatement activities. We specify an environmental production technology to model the joint production of good and bad outputs. The joint production model calculates pollution abatement costs and identifies changes in these costs associated with: (1) technical change, (2) input changes, and (3) changes in bad output production. Estimates of the relative importance of each factor are estimated using data from1995 to 2005 for a sample of coal-fired power plants in the United States. Finally, we discuss the potential usefulness of the decomposition model for identifying discrepancies between ex ante and ex post pollution abatement costs that are linked to the underlying joint production model.This is the publisher’s final pdf. The published article is copyrighted by Elsevier and can be found at: http://www.journals.elsevier.com/european-journal-of-operational-research/Keywords: Environmental technology, Environmental production function, Ex-ante pollution abatement costs, Ex-post pollution abatement cost

Productivity change and fleet restructuring after transition to individual transferable quota management

Productivity change after transition to an individual transferable quota (ITQ) management system is driven by exit of some vessels, entry of other vessels, and changes in productivity of existing vessels. Generally, it is thought that an ITQ system boosts productivity due to the exit of less productive vessels. However, ITQ management systems also create an additional barrier to entry, and more productive vessels may not be able to enter the fishery. This study constructs the Färe–Primont index to measure productivity change for the Mid-Atlantic surf clam and ocean quahog fishery over a 32 year time period, which includes both pre and post-ITQ time periods. The index is then combined with a biomass change index to arrive at a measure of biomass adjusted productivity change. Results show that when biomass changes are considered, positive productivity gains occurred throughout the time period. Further examination of contributions from entering and survivor vessels show that entering vessels had little impact on aggregate productivity, but on an individual basis, they eventually were equal in productivity to survivor vessels.Keywords: Färe–Primont index, ITQ fisheries, Productivit

Potential gains from trading bad outputs: The case of U.S. electric power plants

Jointly with kilowatt-hours (kWh), electric power plants also produce CO₂, NO[subscript x], and SO₂. In this paper, we apply an environmental production model based on data envelopment analysis (DEA) to compare the production of kWh under command-and-control regulation of the undesirable byproduct with tradable permit regulation of the byproduct. This is done for each of the three undesirable outputs and combinations of them. We apply our model to a dataset of 80 coal-fired electric power plants from 1995 to 2005. From this we can identify the potential gains from trading the most common undesirable outputs produced by coal-fired electric power plants.Keywords: Joint production, Weak disposability, Tradable permit

Decomposing profit efficiency using a slack-based directional distance function

This paper develops a slack-based decomposition of profit efficiency based on a directional distance function. It is an alternative to Cooper, Pastor, Aparicio, and Borras (2011)

Tradable permits and unrealized gains from trade

With the advent of tradable permit programs for bad outputs (e.g., SO₂ emissions); concerns arose over whether the theoretical gains from trade would be realized. We will employ a methodology that calculates the potential gains accruing to coal-fired electric power plants from implementing a tradable permit program. The magnitude of the potential gains in a plant's kilowatt hour output from a tradable permit program relative to its observed production provides insights into the existence of intertemporal allocative inefficiencies and spatial allocative inefficiencies after the implementation of a tradable permit program.KEYWORDS: SO₂ emissions, Joint production model, Tradable permitsThis is the publisher’s final pdf. The published article is copyrighted by Elsevier and can be found at: http://www.journals.elsevier.com/energy-economics