Management Practices, Environmental Conditions and Productive Efficiency in the Service Industry. An Empirical Study of the Hotel Industry in Trentino

Abstract

The hotel industry shows a wide dispersion of productive efficiency. The paper tries to isolate the exogenous determinants of the observedproductivity levels from factors related to corporate management. Among the exogenous determinants, demand conditions and the varying degree of attractiveness of tourism destinations play a central role. To assess how these factors influence the productivity of hotels we apply the metafrontier approach, a recent development of the Data Envelopment Analysis. The method allows identifying two components of the performance of each hotel: the distance of each unit from the local technological frontier and a metatechnology ratio that captures how far the local frontier is from the global one. Using an original database built by the statistical office of the Autonomous Province of Trento, the authors gauge the contribution of both components to the overall performance of hotels operating in 14 tourism destinations of the region. Results show that a large share of variability in productivity levels is due to the within component of each area; i.e., productivity differences in the same area are wider than differences between areas. This result holds even after controlling for quality differences across hotels, thus suggesting that organization and management practices are a major source of the observed heterogeneity.