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.