The use of parametric and non-parametric frontier methods to measure the productive efficiency in the industrial sector: A comparative study

Abstract Parametric frontier models and non-parametric methods have monopolised the recent literature on productive efficiency measurement. Empirical applications have usually dealt with either one or the other group of techniques. This paper applies a range of both types of approaches to an industrial organisation setup. The joint use can improve the accuracy of both, although some methodological difficulties can arise. The robustness of different methods in ranking productive units allows us to make a comparative analysis of them. Empirical results concern productive and market demand structure, returns-to-scale, and productive inefficiency sources. The techniques are illustrated using data from the US electric power industry.

[1]  G. Battese,et al.  ESTIMATION OF A PRODUCTION FRONTIER MODEL: WITH APPLICATION TO THE PASTORAL ZONE OF EASTERN AUSTRALIA , 1977 .

[2]  C. Timmer.  Using a Probabilistic Frontier Production Function to Measure Technical Efficiency , 1971, Journal of Political Economy.

[3]  Abraham Charnes,et al.  Cone ratio data envelopment analysis and multi-objective programming , 1989 .

[4]  Allen N. Berger.  “Distribution-free” estimates of efficiency in the U.S. banking industry and tests of the standard distributional assumptions , 1993 .

[5]  Marc Nerlove,et al.  RETURNS TO SCALE IN ELECTRICITY SUPPLY , 1961 .

[6]  אסתר טולידנו,et al.  מקבלי דמי אבטלה, 1997 , 1998 .

[7]  On maximum likelihood estimation of stochastic frontier production models , 1983 .

[8]  Jati K. Sengupta,et al.  Data envelopment analysis for efficiency measurement in the stochastic case , 1987, Comput. Oper. Res..

[9]  W. Greene,et al.  Economies of Scale in U.S. Electric Power Generation , 1976, Journal of Political Economy.

[10]  C. Lovell,et al.  Estimating stochastic production and cost frontiers when technical and allocative inefficiency are correlated , 1980 .

[11]  Subal C. Kumbhakar,et al.  THE MEASUREMENT AND DECOMPOSITION OF COST-INEFFICIENCY: THE TRANSLOG COST SYSTEM* , 1991 .

[12]  A. U.S.,et al.  FORMULATION AND ESTIMATION OF STOCHASTIC FRONTIER PRODUCTION FUNCTION MODELS , 2001 .

[13]  W. Meeusen,et al.  Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error , 1977 .

[14]  Harold O. Fried,et al.  The measurement of productive efficiency : techniques and applications , 1993 .

[15]  Timothy Coelli,et al.  An Introduction to Efficiency and Productivity Analysis , 1997 .

[16]  Rajiv D. Banker,et al.  Efficiency Analysis for Exogenously Fixed Inputs and Outputs , 1986, Oper. Res..

[17]  ברנדה מורגנשטיין ורונית ליברמן.  שירות המקיף לקשיש בטברי , 1981 .

[18]  J. Sengupta.  Estimating efficiency by cost frontiers: a comparison of parametric and nonparametric methods , 1995 .

[19]  R. Färe,et al.  The relative performance of publicly-owned and privately-owned electric utilities , 1985 .

[20]  Rajiv D. Banker,et al.  The Use of Categorical Variables in Data Envelopment Analysis , 1986 .

[21]  Gary D. Ferrier,et al.  Measuring cost efficiency in banking: Econometric and linear programming evidence , 1990 .

[22]  J. Cummins,et al.  Comparison of Frontier Efficiency Methods: An Application to the U.S. Life Insurance Industry , 1998 .

[23]  W. Greene.  On the estimation of a flexible frontier production model , 1980 .

[24]  P. Schmidt,et al.  Limited-Dependent and Qualitative Variables in Econometrics. , 1984 .

[25]  Lawrence M. Seiford,et al.  Recent developments in dea : the mathematical programming approach to frontier analysis , 1990 .

[26]  Lennart Hjalmarsson,et al.  Efficiency and ownership in Swedish electricity retail distribution , 1992 .

[27]  G. Debreu.  The Coefficient of Resource Utilization , 1951 .

[28]  Jati K. Sengupta,et al.  A dynamic efficiency model using data envelopment analysis , 1999 .

[29]  Byung-Joo Lee.  Separability test for the electricity supply industry , 1995 .

[30]  C. Lovell,et al.  Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers , 1979 .

[31]  Lennart Hjalmarsson,et al.  Efficiency and ownership in Swedish electricity retail distribution , 1992 .

[32]  The Structure of Production, Technological Change, and the Rate of Growth of Total Factor Productivity in the Bell System , 1979 .

[33]  O. H. Brownlee,et al.  ACTIVITY ANALYSIS OF PRODUCTION AND ALLOCATION , 1952 .

[34]  C. Lovell,et al.  On the estimation of technical inefficiency in the stochastic frontier production function model , 1982 .

[35]  W. Greene.  A Gamma-distributed stochastic frontier model , 1990 .

[36]  J. Richmond.  Estimating the Efficiency of Production , 1974 .

[37]  Abraham Charnes,et al.  Measuring the efficiency of decision making units , 1978 .

[38]  M. Farrell.  The Measurement of Productive Efficiency , 1957 .

[39]  A. Heshmati,et al.  Temporal patterns of technical efficiency: Results from competing models , 1997 .