The Distribution and Heterogeneity of Technical Efficiency within Industries: An Empirical Assessment

This paper analyzes the distribution of technical efficiency within manufacturing industries. Using a representative sample of 35,000 firms in 255 industries of the German cost structure census, technical efficiencies are estimated by applying a deterministic frontier production function with firmspecific fixed effects. A new measure is also introduced for characterizing the extent of heterogeneity within an industry that is robust with regard to extreme values of a few small firms. It was found that the level of intra-industry heterogeneity is mainly determined by an industries' average technical efficiency, average firm size, capital intensity and the rate of new firm formation. Most strikingly, we find that in about 95 percent of industries the distribution of technical efficiency is skewed to the right, not to the left as is commonly assumed.Technical efficiency; Heterogeneity; Deterministic production function frontier

What causes cross-industry differences of technical efficiency? An empirical investigation

Using micro-level panel data of about 35,000 firms from the German Cost Structure Census, we analyze the differences of technical efficiency across industries. Technical efficiency is estimated by firms fixed effects. One striking result is that the distribution of technical efficiency across industries is positively skewed. This is because the efficiency distribution is truncated at the lower end due to the least efficient firms which exit the market. We investigate the causes of technical efficiency differences across industries. Our econometric analyses provide evidence that capital and human capital intensity, the degree of vertical specialization as well as new firm formation rate are important for explaining the average technical efficiency of an industry. -- Anhand von Mikro-Daten für ca. 35.000 Unternehmen aus der deutschen Kostenstrukturstatistik analysieren wir Branchenunterschiede der technischen Effizienz. Dabei wird die technische Effizienz als ein unternehmensspezifischer fixer Effekt spezifiziert. Ein wesentliches Ergebnis besteht in dem Befund, dass die Verteilung der technischen Effizienz über die Branchen eine positive Schiefe aufweist. Der Grund hierfür ist offenbar darin zu sehen, dass die Effizienzverteilung innerhalb der Branchen jeweils am unteren Ende abgeschnitten ist, da die Unternehmen mit relativ geringer Effizienz aus dem Markt ausscheiden müssen. Nach den Ergebnissen unserer ökonometrischen Analyse spielen die Sachkapital- und Humankapitalintensität, das Ausmaß vertikaler Spezialisierung sowie die das Ausmaß an Marktzutritten für die Erklärung der durchschnittlichen technischen Effizienz einer Branche eine wesentliche Rolle.Technical efficiency,cross-industry study,efficiency distribution,Technische Effizienz,Branchenunterschiede,Effizienzverteilung

Measuring performance heterogeneity within groups: A two-dimensional approach

We introduce a new two-dimensional measure for the heterogeneity of performance within groups of economic units. This measure accounts both, for the relative performance of the single units of groups and their relative size. We demonstrate that the new measure leads to a much more differentiated description of heterogeneity than alternative measures, for example, the mean or range. In particular, we provide an example to demonstrate that the proposed measure of heterogeneity is relatively robust with regard to extreme values of units ("outliers") with a relatively small size. -- Wir stellen ein neues zweidimensionales Maß für die Heterogenität der Leis-tungsfähigkeit innerhalb von Gruppen ökonomischer Einheiten vor. Dieses Maß berücksichtigt neben der Leistungsfähigkeit auch die relative Größe der betreffen-den Einheiten. Wir zeigen, dass dieses neue Maß die Heterogenität innerhalb von Gruppen wesentlich differenzierter beschreibt als alternative Maße, wie etwa das arithmetische Mittel und die Spannweite. Anhand eines numerischen Beispiels kann gezeigt werden, dass unser Maß vergleichsweise robust gegenüber extremen Werten (Ausreißern) relativ kleiner Einheiten ist.Performance,heterogeneity,dispersion measures,Leistungsfähigkeit,Heterogenität,Streuungsmaße

What Causes Cross-Industry Differences of Technical Efficiency?: An Empirical Investigation

Using micro-level panel data of about 35,000 firms from the German Cost Structure Census, we analyze the differences of technical efficiency across industries. Technical efficiency is estimated by firms' fixed effects. One striking result is that the distribution of technical efficiency across industries is positively skewed. This is because the efficiency distribution is truncated at the lower end due to the least efficient firms which exit the market. We investigate the causes of technical efficiency differences across industries. Our econometric analyses provide evidence that capital and human capital intensity, the degree of vertical specialization as well as new firm formation rate are important for explaining the average technical efficiency of an industry.Technical efficiency; Cross-industry study; Efficiency distribution

What Determines the Technical Efficiency of a Firm? The Importance of Industry, Location, and Size

This paper investigates the factors that explain the level of technical efficiency of a firm. In our empirical analysis, we use a unique sample of about 35,000 firms in 256 industries from the German Cost Structure Census over the years 1992-2004. We estimate the technical efficiency of the firms and relate it to firm- and industry-specific characteristics. One third of the explanatory power is due to industry effects. Size accounts for another 25 percent and the headquarters? location explains ten percent of the variation in efficiency. Most other firm characteristics such as ownership structure, legal form, age of the firm and outsourcing activities have an extremely small explanatory power. R&D activity does not exert any positive influence on technical efficiency.Frontier analysis, determinants of technical efficiency, firm     performance, industry effects, regional effects.

Allocative Efficiency Measurement Revisited: Do We Really Need Input Prices?

The traditional approach to measuring allocative efficiency is based on input prices, which are rarely known at the firm level. This paper proposes a new approach to measure allocative efficiency which is based on the output-oriented distance to the frontier in a profit - technical efficiency space - and which does not require information on input prices. To validate the new approach, we perform a Monte-Carlo experiment which provides evidence that the estimates of the new and the traditional approach are highly correlated. Finally, as an illustration, we apply the new approach to a sample of about 900 enterprises from the chemical industry in Germany.Allocative efficiency, data envelopment analysis, frontier analysis, technical efficiency, Monte-Carlo study, chemical industry

What Drives the Productive Efficiency of a Firm?: The Importance of Industry, Location, R&D, and Size

This paper investigates the factors that explain the level and dynamics of manufacturing firm productive efficiency. In our empirical analysis, we use a unique sample of about 39,000 firms in 256 industries from the German Cost Structure Census over the years 1992-2005. We estimate the efficiencies of the firms and relate them to firm-specific and environmental factors. We find that (1) about half the model's explanatory power is due to industry effects, (2) firm size accounts for another 20 percent, and (3) location of headquarters explains approximately 15 percent. Interestingly, most other firm characteristics, such as R&D intensity, outsourcing activities, or the number of owners, have extremely little explanatory power. Surprisingly, our findings suggest that higher R&D intensity is associated with being less efficient, though higher R&D spending increases a firm's efficiency over time.Frontier analysis, determinants of efficiency, firm performance, industry effects, regional effects, firm size

Allocative efficiency measurement revisited: Do we really need input prices?

The traditional approach to measuring allocative efficiency is based on input prices, which are rarely known at the firm level. This paper proposes a new approach to measure allocative efficiency which is based on the output-oriented distance to the frontier in a profit?technical efficiency space-and which does not require information on input prices. To validate the new approach, we perform a Monte-Carlo experiment which provides evidence that the estimates of the new and the traditional approach are highly correlated. Finally, as an illustration, we apply the new approach to a sample of about 900 enterprises from the chemical industry in Germany. --allocative efficiency,data envelopment analysis,frontier analysis,technical efficiency,Monte-Carlo study,chemical industry

Allocative efficiency measurement revisited: do we really need input prices?

The traditional approach to measuring allocative efficiency is based on input prices, which are rarely known at the firm level. This paper proposes a new approach to measure allocative efficiency which is based on the output-oriented distance to the frontier in a profit - technical efficiency space - and which does not require information on input prices. To validate the new approach, we perform a Monte-Carlo experiment which provides evidence that the estimates of the new and the traditional approach are highly correlated. Finally, as an illustration, we apply the new approach to a sample of about 900 enterprises from the chemical industry in Germany. --Allocative efficiency,data envelopment analysis,frontier analysis,technical efficiency,Monte-Carlo study,chemical industry

The impact of business process outsourcing on firm performance and the influence of governance : a long term study in the German banking industry

Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability. Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance JEL Classifications: G21, L14, L21, L2