Efficiency Measurement of Ferries Serving Road Networks in Norway: A Stochastic Frontier Approach

This paper analyses the performance of ferries operating along the Norwegian road networks. These ferries are of critical importance to the trunk road system, as they act as links in the road system by transporting vehicles across fjords. However, ferries are subsidised by the government because they operate at a loss. It is therefore important for governmental agencies to assess the performance in order to understand the potential for efficiency and productivity improvements (eg, by implementing alternative subsidy regimes). The performance of ferries (ie, technical efficiency and productivity) is estimated using the stochastic frontier approach to efficiency measurement and its subsequent Malmquist productivity indices. Technical inefficiency effects are modelled as ferry-specific external factors (eg, areas of operation or year of construction). The data are from the accounting period 2003–2005 and are comprised of 82 ferries. The results show that there is great potential for efficiency improvements among ferries, in the range of 19%–20%. The external factors have a significant impact on efficiency, as the productivity of ferries has increased by approximately 2% over the period studied and this progress is mainly due to advances in efficiency changes. This means that ferries generally have a tendency to improve their efficiency, but fail to adopt technologies for the reason that they are too old. These results should be valuable for policy decisions. The Norwegian government is currently considering tendering as a means of improving efficiency in the ferry sector. We advise that a change in the subsidy system alone is not enough to ensure efficiency improvements, unless incentives for investments in new ferries are included.