Dynamic Inefficiency Research Articles

Developing an efficiency evaluation model for the circular economy in Europe

ABSTRACT The aim of this work is to develop a model for evaluating the efficiency of the Circular Economy (CE) in Europe. In this context, we have developed a dynamic efficiency model of the CE, the Dynamic Network Data Envelopment Analysis (DNDEA) model (Tone and Tsutsui 2014), with the purpose of it being utilized to determine the degree of progress of the policies on the CE, the degree of compliance with those policies, as well as to determine the factors that are associated with a greater or lesser efficiency. The results obtained indicate that the factors which have most affected the dynamic inefficiency have been: the Imports from the EU countries, the Exports to the non-EU countries, and the Gross Value Added. The patents that are related to Waste Management, Recycling, and Persons Employed in the CE sector have been the factors that have added the greatest efficiency. The contribution of this work lies in the development of a new model for the measurement of the dynamic efficiency of the CE at the macroeconomic level in Europe, while considering the relationships between the results and the resources that are allocated to the CE, and establishing a period of implementation and execution.

Identification and estimation of panel semiparametric conditional heteroskedastic frontiers with dynamic inefficiency

We study a semiparametric panel stochastic frontier model with nonseparable unobserved heterogeneity, which allows for time-varying conditional heteroskedastic productivity components. It does not require distributional assumptions on random noise except conditional symmetry. We utilize conditional characteristic functions from Kotlarski’s Lemma to derive new moment conditions that yield the identification of the heteroskedastic variance parameters of inefficiency and random noise. Identification only requires a panel with three periods for serially correlated inefficiency. A nonparametric estimation procedure is also developed for the conditional variance of inefficiency, and its convergence rate is established. Monte Carlo simulation shows that the estimator is robust to misspecification of inefficiency distributions.

Dynamic Inefficiency, Environmental Tax and Climate Change – A DICE Overlapping Generation Model Analysis

Dynamic Inefficiency, Environmental Tax and Climate Change – A DICE Overlapping Generation Model Analysis

Un modelo dinámico no paramétrico para medir eficiencia

Conventional efficiency evaluation systems present little diversity in the type of variables considered. This aspect generally leads to errors in the application of the models and in the corresponding interpretation of results. This study proposes a dynamic model to measure the efficiency of decision-making units, based on non-parametric Multidirectional Efficiency Analysis (MEA). The model presented here considers a complete structure, which includes intertemporal variables (desirable/undesirable intermediate inputs and outputs), discretionary/non-discretionary inputs; desirable/undesirable inputs and outputs. Dynamic score is defined first in a particular version and then in a more general version, considering two optimization problems. The directional contribution of each variable is examined, showing excess inputs and deficit outputs. In addition, a dynamic inefficiency index to measure the number of times each input was used inefficiently, is presented for both desirable and undesirable cases.

Revisiting rebound effects of energy use and pollutant emissions: The role of technological change

Measuring the rebound effect (RE) of energy use and pollutant emissions is fundamental to characterizing the effects of technological progress on energy conservation and emissions reduction. This paper presents a total-factor RE model that combines the Fixed effects (FE) model, Data Envelopment Analysis (DEA), and Luenberger Productivity Indicator (LPI). The proposed model takes into account two types of disposability for variable-specific decomposition for LPI. The model includes two general indices, static inefficiency performance and dynamic inefficiency performance, which can be used to assess performance in the industrial sector and measure technological change and RE. The results show that switching from natural to managerial disposability improves energy RE by 12% but reduce RE of NOx and SO2 emissions by 22% and 24%, respectively. These findings suggest that cleaner energy expansion can promote energy RE, while reducing environmental RE.

Low safe interest rates: A case for dynamic inefficiency?

We reexamine the tests for dynamic inefficiency in productive overlapping-generations economies with stochastic growth. Contrary to certain claims in the recent literature, we argue that the size of real safe interest rates relative to average GDP growth is an inconclusive test for dynamic inefficiency. A more accurate test should take into account the correlation between growth and the marginal utility of wealth. We provide an exhaustive criterion based on the growth-adjusted dominant root of the stochastic discount factor emerging at the competitive equilibrium. Surprisingly, a preliminary rough empirical application of this criterion uncovers dynamic inefficiency of the US economy for any reasonable degree of risk aversion. We also distinguish capital overaccumulation from an inefficient distribution of consumption risk. The refined test for capital overaccumulation is rather stringent: Capital is not overaccumulated if the net dividend remains positive with some probability, as opposed to always, as in the original Abel et al. (1989)'s formulation.

Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency

Public investment is a central issue in the dynamic analyses of fiscal policy and economic growth. Debt financing for public investment and its effects have recently received great attention because interest rates have been low, almost invariably remaining below economic growth rates. This paper presents examination of the effects of debt-financed public investment subject to a simple fiscal rule in an overlapping generations model with public capital. This topic includes capital budgeting and the debt–deficit criterion of the Maastricht treaty. We show herein that debt financing for public investment enhances economic growth if an economy is dynamically inefficient and if public capital has a sufficiently large productivity effect. Moreover, it reduces economic growth rates in a dynamically efficient economy. Debt and growth can have a monotonic or non-monotonic relation, depending on the steady-state interest rate, growth rate, and productivity effect of public investment. The findings indicate that debt–growth relations match with controversial empirical evidence. Furthermore, existing generations choose perfect debt finance if dynamic inefficiency exists. In contrast, a balanced budget is preferred in a dynamically efficient economy with low productivity effects of public capital. However, an economy with high productivity effects of public capital might cho ose debt financing. This paper contributes to the elucidation of currently emphasized issues of public investment.

Measuring dynamic inefficiency through machine learning techniques

This paper contributes by developing new models for assessing dynamic inefficiency that incorporate machine learning techniques. In particular, the new approaches apply decision trees models for the estimation of dynamic production technologies that account for investment adjustment costs. Methodologically, the new models build on the recently developed techniques of Efficiency Analysis Trees (EAT) and Convexified Efficiency Analysis Trees (CEAT) and extend them even further to a dynamic framework comprising dynamic EAT and CEAT models. The study compares dynamic inefficiency scores estimated assuming the new models against the traditional dynamic free disposal hull (FDH) and dynamic data envelopment analysis (DEA). Our empirical application focuses on dairy manufacturing firms in the main dairy processing countries in the European Union for the years 2014 and 2018. The results show that inefficiency related to the dynamic CEAT or EAT is higher than their corresponding values calculated through the dynamic DEA or FDH. The discriminating power of dynamic DEA (dynamic FDH) drastically improves when switching to dynamic CEAT (dynamic EAT). Finally, the differences between countries are observed regarding the development of dynamic inefficiency in the period associated with milk quota abolition.

Measuring conditional correlation between financial markets' inefficiency

<abstract><p>Assuming that stock prices follow a multi-fractional Brownian motion, we estimated a time-varying Hurst exponent ($ h_t $). The Hurst value can be considered a relative volatility measure and has been recently used to estimate market inefficiency. Therefore, the Hurst exponent offers a level of comparison between theoretical and empirical market efficiency. Starting from this point of view, we adopted a multivariate conditional heteroskedastic approach for modeling inefficiency dynamics in various financial markets during the 2007 financial crisis, the COVID-19 pandemic and the Russo-Ukranian war. To empirically validate the analysis, we compared different stock markets in terms of conditional and unconditional correlations of dynamic inefficiency and investigated the predicted power of inefficiency measures through the Granger causality test.</p></abstract>

R Minus g

In long-term data, the dynamic efficiency condition, r>g, holds when g is the growth rate of GDP if r is the return on equity, re, but not if r is the risk-free rate, rf. This pattern accords with a disaster-risk model that fits observed equity premia. The equilibrium may feature rf≤g, which does not signal dynamic inefficiency. In contrast, re>g is required for dynamic efficiency, implied by the model, and consistent with data. With complete markets, the representative consumer's transversality condition translates into a no-Ponzi constraint on the public debt that the government can issue asymptotically. Therefore, fiscal changes do not affect the net wealth of the representative consumer, and Ricardian Equivalence holds. This result also holds in an example with incomplete markets where individual ownership of capital stocks cannot be fully diversified.

The lack of dynamic competition and the market insufficiency for agricultural productivity growth: Implications for the role of the state

AbstractThis paper shows that there is lack of dynamic competition in agriculture, making the market mechanism of agriculture insufficient for bringing about technological innovations. The market insufficiency differs from market failures in that the former causes dynamic inefficiency and lack of growth while the latter causing static inefficiency in resource allocation at a point in time. As a result, farm firms represent a special type of business organizations lacking dynamic competition. This paper proposes and evaluates hypotheses about the shifting roles of the state and agro‐input supply sector in bringing about agricultural productivity growth across countries at different development stages.

Dynamic inefficiency by promoting relative consumption

AbstractI develop a dynamic model of consumption variety in status goods by introducing a realistic aspect that is new in the existing literature—that a good will not carry status appeal unless it is advertised. As advertisements will divert resources from new product research, growth in new products will be reduced. However, status-good advertisements also enhance distinctiveness of a good and increase a firm’s profit. This will motivate more researches. With the two effects offsetting each other, the original market bias in a standard product-development model—insufficient research due to a general knowledge spillover—cannot be overcome. While introducing advertising into models of this kind does not reverse the original welfare implication of suboptimal growth, this makes available a new and better intervention option—taxing advertisements. This tax is superior to consumption tax, the conventional solution to inefficient status competition, as consumption tax is found to be ineffective in the present model. It is also superior to research subsidies, the conventional solution to suboptimal growth, as subsidies must be financed and is not a self-sufficient policy.

Social security as Markov equilibrium in OLG models: Clarifications and some new insights

This paper studies the politico-economic sustainability of pay-as-you-go social security in OLG models under Markovian strategies as first studied by Forni (2005). Under logarithmic utility, the paper shows that equilibria with social security can only exist if the underlying economy is dynamically inefficient. The paper also derives the exact parametric conditions that allow for the existence of equilibria and shows that among all the admissible (arbitrary) constants that produce a Markov perfect equilibrium, the maximum constant in such set yields the only equilibrium that solves dynamic inefficiency.

Endogenous dynamic inefficiency and optimal resource allocation: An application to the European Dietetic Food Industry

The conventional dynamic cost inefficiency model relies on the directional distance function with an exogenous directional vector to measure technical and allocative inefficiency. However, this approach may lead to contradictory recommendations for firms to become technically and allocatively efficient. By definition, the conventional model forces firms to reduce their inputs and increase their investments in order to become technically efficient; for some firms this is followed by the reverse recommendation to become allocatively efficient. This paper proposes a model that endogenizes the directional vector to solve for the cost minimizing combination of inputs and investments. In contrast to the conventional model with an exogenous directional vector, our model provides managers with monotonic prescriptions. We illustrate the superiority of the endogenous directional vector model over its conventional counterpart using a dataset of EU firms in the dietetic food industry. The differences in the managerial prescriptions are striking, with the conventional model wrongly recommending reductions in inputs that are underused with respect to their optimal amounts minimizing cost.

CROSS-NATIONAL COMPARISON OF DYNAMIC INEFFICIENCY FOR EUROPEAN DIETETIC FOOD MANUFACTURING FIRMS

Food health and wellness has become increasingly important for consumers, and this has inevitably caused growth in the dietetic food manufacturing sector. This paper examines the technical inefficiency of dietetic food manufacturing firms in five major dietetic food producing European countries (France, Italy, Norway, Poland and Spain) for the period 2009–2017. To account for the sluggish adjustment of capital, we employed a dynamic production framework within the nonparametric method of Data Envelopment Analysis. Furthermore, we used the concept of a metafrontier to compare inefficiency between countries and analyzed three inefficiency measures: estimated with regard to a metafrontier (pooled dynamic inefficiency), computed with reference to country-specific frontier (managerial dynamic inefficiency), and the gap between these two frontier measures (program dynamic inefficiency). The results indicate that firms in Poland were the least dynamically inefficient among countries analyzed, while companies in Norway were at the opposite end of the spectrum. Managerial inefficiency was the largest source of pooled inefficiency for firms in France and Italy, while program inefficiency was the main reason of pooled inefficiency for firms in Norway, Poland and Spain. The results also reveal that investments were the most inefficient factor, followed by output, materials and employees.

Measuring firms' dynamic inefficiency accounting for corporate social responsibility in the U.S. food and beverage manufacturing industry

AbstractThis article proposes an innovative approach to evaluate firms' inefficiency accounting for corporate social responsibility. In the first step, we estimate dynamic inefficiency for each factor of production using data envelopment analysis. Next, we explore differences in inefficiencies between groups of firms of which participation is determined using latent class analysis. The empirical application focuses on the United States food and beverage manufacturing firms over the period 2004–2018. The results distinguish three classes of firms that differ in terms of their inefficiency, their association with external covariates as well as in their input–output profiles.

Low Safe Interest Rates: A Case for Dynamic Inefficiency?

Low Safe Interest Rates: A Case for Dynamic Inefficiency?

Market Competition and Political Influence: An Integrated Approach

The operation of markets and of politics are in practice deeply intertwined. Political decisions set the rules of the game for market competition and, conversely, market competitors participate in and influence political decisions. We develop an integrated model to capture the circularity between the two domains. We show that a positive feedback loop emerges such that market power begets political power, and political power begets market power, but that this feedback loop is bounded. With too much market power, the balance between politics and markets itself becomes lopsided and this drives a wedge between the interests of a policymaker and the dominant firm. Although such a wedge would seem pro‐competitive, we show how it can exacerbate the static and dynamic inefficiency of market outcomes. More generally, our model demonstrates that intuitions about market competition can be upended when competition is intermediated by a strategic policymaker.

Capital as common-pool resource: Horizon problem, financial sustainability and reserves in worker cooperatives

• Collective capital reserves are considered as common-pool resources in cooperative enterprises. • The problem of undercapitalization due to the members’ truncated temporal horizon and capital variability is reconsidered. • A new layered system of divisible and indivisible reserve funds is proposed as possible solution to under-investment. • Inner or indivisible layers correspond to stability and strength of patrimony. •Outer or divisible layers correspond to performance and members’ financial involvement. In most countries, self-financed accumulation of capital in cooperative enterprises makes substantial (but variable) use of indivisible reserves, which can be understood as common-pool capital resources, since they are characterized by rivalry and non-excludability in utilization among the members of the cooperative. The paper is structured in two main parts. The first part deals with dynamic inefficiency in investments and the problem of undercapitalization due to the members’ truncated temporal horizon in worker cooperatives. The conjugation of different types of reserves, divisible and indivisible, is envisaged as possible solution to under-investment. In the second part, a new layered system of reserve funds, both divisible and indivisible, is discussed, showing that each different layer has distinctive functions in facing the stability vs performance trade-off: stability and strength of patrimony are adjudicated to the indivisible layers, while efficient allocation of reinvested funds and members’ financial involvement require divisible reserve layers.

Growth, distribution and dynamic inefficiency in Turkey: An analysis of the naïve neoclassical theory of capital

This paper presents a critical analysis of the naïve neoclassical theory of capital by applying it to Turkish economic history. The paper first develops a unified framework of theoretical predictions on growth, distribution, and dynamic inefficiency. This framework clarifies why the naïve neoclassical theory remains largely misleading in understanding the historical, macro dynamics of a growing, capitalist economy. Using this framework and long-run macroeconomic data for the 1923–2005 period, the paper establishes a new set of empirical findings that contribute to the related literature on Turkey. The paper then discusses the limitations of the naïve neoclassical theory by building on these empirical results and some lessons from Turkish economic history. This discussion summarizes some empirical findings on the distributional causes and consequences of growth in Turkey, by focusing mainly on the role of heterodox theories of growth and distribution.