Measure Of Economic Efficiency Research Articles

Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss

We apply nonparametric regression models to estimation of demand curves of the type most often used in applied research. From the demand curve estimators we derive estimates of exact consumers surplus and deadweight loss, which are the most widely used welfare and economic efficiency measures in areas of economics such as public finance. We also develop tests of the symmetry and downward sloping properties of compensated demand. We work out asymptotic normal sampling theory for kernel and series nonparametric estimators, as well as for the parametric case. The paper includes an application to gasoline demand. Empirical questions of interest here are the shape of the demand curve and the average magnitude of welfare loss from a tax on gasoline. In this application we compare parametric and nonparametric estimates of the demand curve, calculate exact and approximate measures of consumers surplus and deadweight loss, and give standard error estimates. We also analyze the sensitivity of the welfare measures to components of nonparametric regression estimators such as the number of terms in a series approximation.

Measurement of Economic Efficiency in Pakistani Agriculture

AbstractThe behavioral and stochastic cost frontier functions are applied to estimate cost inefficiency by farms. The behavioral approach satisfies most of the assumptions of dual cost function and the likelihood ratio test rejects the market efficiency hypothesis implying less than optimum use of manures, labor, and fertilizers. A suboptimal use is explained by holding size, education, credit, and subsistence needs. Small farms seem to be more efficient than large farms in the region. A measure of inefficiency based on a stochastic cost frontier approach confirms the results of the behavioral approach.

Effort Levels in Contests with Two Asymmetric Players

A contest is a situation in which players compete with one another by expending effort to win a prize. Examples abound. Firms compete by spending RD 26], Krueger [14], Posner [20], Rogerson [23], Appelbaum and Katz [1], Hillman and Riley [12], Hirshleifer [13], Ellingsen [8], Nitzan [18], and Baik [2; 3] have studied rent-seeking contests. Lazear and Rosen [15], O'Keeffe, Viscusi, and Zeckhauser [19], and Rosen [24] have examined performance incentives associated with reward schemes. Riley [22] has analyzed the war of attrition and auctions. Dixit [7] has considered strategic commitments in contests with different applications. These are only a part of the literature on the theory of contests. Despite the vast literature, however, the effects of asymmetries between players have not been clarified, except by Harris and Vickers [11] who analyze, in a patent race model, the strategic consequences of asymmetries. The purpose of this paper is to examine the effects of asymmetries between two players on individual and total effort levels in a model with a logit-form probability-of-winning function. Effort levels expended by the players deserve attention. Effort in a rent-seeking contest is interpreted as social costs and thus total effort level is a measure of economic efficiency; effort in an R&D contest is interpreted as R&D expenditures and thus effort levels determine the expected date of invention. We focus on asymmetries between the players resulting from their different valuations of the prize, their different abilities to convert effort into probability of winning, or both. Such asymmetries are common in contests. For example, people in different locations may receive different

Efficiency in agricultural production: the case of peasant farmers in eastern Paraguay

AbstractThis paper contributes to the productivity literature in developing country agriculture by quantifying the level of efficiency for a sample of peasant farmers from Eastern Paraguay. A stochastic efficiency decomposition methodology is used to derive technical, allocative and economic efficiency measures separately for cotton and cassava. An average economic efficiency of 40.1% for cotton and of 52.3% for cassava is found, which suggests considerable room for productivity gains for the farms in the sample through better use of available resources given the state of technology. Gains in output through productivity growth have become increasingly important to Paraguay as the opportunities to bring additional virgin lands into cultivation have significantly diminished in recent years. No clear strategy to improve farm productivity could be gleaned from an examination of the relationship between efficiency and various socioeconomic variables. One possible explanation for this finding is the existence of a stage of development threshold below which there is no consistent relationship between socioeconomic variables and productivity. If this is the case, then our results suggest that this sample of Paraguayan peasants are yet to reach such a threshold. Hence, improvements in educational and extension services, for example, would be needed to go beyond this threshold. Once this is accomplished, additional productivity gains would be obtained by further investments in human capital and related factors.

Efficiency in agricultural production: The case of peasant farmers in eastern Paraguay

This paper contributes to the productivity literature in developing country agriculture by quantifying the level of efficiency for a sample of peasant farmers from Eastern Paraguay. A stochastic efficiency decomposition methodology is used to derive technical, allocative and economic efficiency measures separately for cotton and cassava. An average economic efficiency of 40.1% for cotton and of 52.× for cassava is found, which suggests considerable room for productivity gains for the farms in the sample through better use of available resources given the state of technology. Gains in output through productivity growth have become increasingly important to Paraguay as the opportunities to bring additional virgin lands into cultivation have significantly diminished in recent years. No clear strategy to improve farm productivity could be gleaned from an examination of the relationship between efficiency and various socioeconomic variables. One possible explanation for this finding is the existence of a stage of development threshold below which there is no consistent relationship between socioeconomic variables and productivity. If this is the case, then our results suggest that this sample of Paraguayan peasants are yet to reach such a threshold. Hence, improvements in educational and extension services, for example, would be needed to go beyond this threshold. Once this is accomplished, additional productivity gains would be obtained by further investments in human capital and related factors.

Potential shortcomings of output:input ratios as indicators of economic efficiency in commercial beef breed evaluations

In recent years animal breeders have increasingly made use of output:input ratios and simple measures of economic efficiency, such as annual profits, as a basis for comparisons and evaluations of the commercial applicability of alternative beef breeds. In many instances, however, output:input ratios may produce fallacious indications of economic efficiency that may, in turn, lead to erroneous conclusions regarding the true commercial applicability of the breeds evaluated. Errors potentially arising from the use of output:input ratios in breed evaluations may be attributed to a combination of 1) a narrow range of input use values under which most breeds are evaluated and 2) the inability of output:input ratios, including average annual profitability, to reflect consistently the economic objectives of commercial cow-calf producers. An alternative basis for breed comparison and evaluation is, therefore, developed from economic theories related to optimal investment and asset replacement. Comparison of the results obtained with this alternative to those obtained from output:input ratio evaluation, including annual profitability, indicate that potential value differences of as much as 33% may result from the use of output:input ratios as a primary basis of commercial breed evaluation.

Multi-Country Evidence on the Effects of Macroeconomic, Financial and Trade Policies on Efficiency of Resource Utilization in the Developing Countries

This study examines the effects of selected policies on economic efficiency in 81 developing countries by pooling cross-country data over various subperiods between 1961-90. An incremental output-capital ratio is the measure of economic efficiency, while the policy variables include: export orientation, size of the public sector, directed credit program through development bank lendings, financial depth, inflation rate, real interest rate, and real exchange rate distortion. The export-orientation, financial depth, and real interest rate are found to promote economic efficiency, while other policy variables are found to hinder it.

Economic Evaluation of Electricity Demand-Side Management Considering Customer Value

What measure of economic efficiency is appropriate for evaluating demand-side management (DSM) programs sponsored by electric utilities? Most regulatory commissions in the United States require that utilities assess the efficiency of alternative programs as part of their planning process. A criterion based upon maximization of consumer surplus is proposed. This, the “most value” test, not only counts the avoided supply cost and environmental benefits of such programs, but also the changes in customer value that result from rebound/takeback and changes in electric rates. The test can be viewed as an extension of the “least cost” test, which many commissions now require utilities to use. Among the “most value” test’s practical implications is the fact that the net benefits of DSM will often be decreased if free riders are present or if electric rates must increase to fund the program. The “least cost” test wrongly assumes these effects to be merely matters of income transfer. Consequently, some programs that are desirable from a “least cost” standpoint will not be beneficial from a “most value” point of view. However, if rebound effects are large enough, the opposite can happen: some DSM programs which are apparently too costly will actually have positive net benefits. These conclusions apply not only to programs for conserving electricity, but also to water and natural gas conservation efforts and programs that promote energy use.

A Darwinian framework for the economic analysis of institutional change in history

Adopting a critical stance towards North's recent theory of institutional change and economic performance, the paper proposes a concept of global efficiency which encompasses not only standard allocative efficiency, but also the efficiency of political institutions in competition among groups. A Darwinian theory of institutions is unfolded in eight propositions which are discussed in some detail. Core concepts include competition among rules and institutions, hierarchical selection, power as proximate goal and criterion of adaptive success, the role of cognitive models, and unintended effects. In particular, the emergence of the state is mostly an unintended effect of the strive for and conflicts over power (in particular, warfare), and in many cases economic institutions emerge as unintended effects of the evolution of the state. Enpirically, a major issue in the Darwinian approach to institutional change is to relate conventional measures of economic efficiency with ecological indicators such as measures of adaptive success proposed by Corning.

The ideology of efficiency: Searching for a theory of policy analysis

The potential Pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory, nor do such measures accord with what public decision makers seek in policy advice from economists. Such efficiency measures are, nonetheless, durable components of the ideology of economics in general, and benefit-cost analysis in particular. The objectivity of the policy scientist has been confused with the objectivity of the science. While economic efficiency has no claim to objectivity, the policy scientist can be an objective analyst of policy choices.

Potential uses of commercial technologies for sheep and goat smallholders in Indonesia

For the identification and assessment of possible technologies for Indonesian smallholder sheep and goat producers, a survey of six specialized, commercial producers was made. Herd or flock sizes ranged from 13 to 400 small ruminants. Measures of biological and economic efficiency were studied. Major differences between technologies used and typical smallholder operations included intensive breeding with bucks or rams, regular animal health inspections, feeding of soybean waste as concentrate, use of hired labor, and sale of manure among commercial breeding operations. Correlation analyses indicated that most measures of productivity were not significantly correlated with size of operation. However, transfer of technology used by commercial, specialized farms to smallholders will have to include frequent mating services, improved plane of nutrition, and better preventative health measures. Economic analyses indicated that, for intensive breeding operations which achieved high reproduction rates, the feeding of soybean waste as a concentrate was profitable when the operation was reasonably close to a soybean processing plant.

Measures of technical efficiency

Färe and Lovell ( J. Econom. Theory 19 (1978), 150–162) suggest four properties that a measure of technical efficiency should satisfy; the commonly employed Debreu-Farrell measure fails three of them. Necessary and sufficient conditions for a measure to satisfy the four conditions are provided and recently proposed measures are analyzed in the light of this result. Also, it is argued that the Debreu-Farrell measure has several desirable properties when one takes account of (1) (perhaps unknown) market prices and the relationship between technical and economic efficiency and (2) its characterization as a measure of economic efficiency using the shadow prices implicit in the production technology.

Rates of Return: Internal or Composite?

Abstract The composite rate of return is apparently joining the more familiar internal rate of return as a measure of economic efficiency. Some analysts suggest that the composite rate replace the internal rate. Others are proceeding as if the replacement has already been approved. It would be an economic tragedy if this were allowed to happen. The composite rate is an erroneous measure that can easily lead to confusing or even absurd conclusions. The internal rate of return is the only valid, single-investment rate of return measure. Because it can now be easily calculated with any computer and many hand-held calculators, the internal rate of return should become a standard analytical measure for all forestry investments.

Expected relative responses to selection for alternative measures of life cycle economic efficiency of pork production.

Relative genetic responses to selection for alternative measures of economic efficiency of pork production were examined. The analysis was based on results from a deterministic bio-economic model of lifecycle pork production. Alternative aggregate breeding values considered were based on cost (+)/unit of live weight or of carcass output lean for different production systems and for different breeding roles of the selected stocks. For cost/unit of lean, changes in leanness (or fatness) dominated the index. For cost/unit of live weight, however, no one trait dominated the index, and changes in growth and reproductive traits as well as the breeding role of the stock (purebred, maternal or paternal) were important in defining selection objectives. Management and production systems were less important than breeding role for cost/unit live weight output, except that importance of growth rate was increased by marketing at the mean weight reached at a fixed age rather than at a fixed weight irrespective of age. Implications of these results for goals and systems of pig improvement are discussed.

Multiobjective programming with related bargaining games An application to utility coal conversions

A method is developed using n-person game theory together with multiple objective programming and is applied to aid-regional decisions on utility coal conversions. Converting oil fired electric utilities to coal is seen as being of great strategic importance. There are, however, many impediments to utility coal conversions including costs and environmental restrictions. The method developed is used to find workable solutions to this problem which are evaluated based upon measures of economic efficiency, environmental degradation and distributive equity. Using these methods, policy makers, planners and administrators can determine solutions that will aid in the resolution of regional conflicts.

Repeatability of Net Economic Effeciency in Dairy Cattle and Role of Some Economic Variables as Its Predictors1,2,3

This investigation was to explore the possibility of improving net profitability in dairy cattle. Net profitability was measured as: 1) total profit; 2) profit per day of herd life; and 3) profit per unit of investment. Repeatabilities were estimated by three methods from two data sets consisting of 202 observations on 78 Holstein cows up to the end of their third calving interval. Repeatabilities of cumulative measures ranged from .6 to .8. Repeatabilities of noncumulative measures of profitability were approximately .4 for total profit and .3 for the other two measures. Correlations between economic variables in first lactation and the three measures of lifetime net profitability show that first lactation total income (correlations .41 to .64), value of product (.42 to .65), value of fat (.37 to .59), value of protein (.46 to .65), feed cost (.3 3 to .57), mastitis cost (−.20 to −.44), and services cost (−.15 to −.36) were significant predictors of the lifetime traits. Value of calves, salvage value, total expense, and initial inventory cost were of little predictive value. Correlations of most economic variables with herd life were low. Correlations of heifer body weight at different ages and age at first calving with all the different lifetime measures of economic efficiency were near zero. Number of services and days open had low negative associations with measures of economic efficiency.

An overview of tourism and planning in the Federal Republic of Germany

German tourism research is an integral part of landuse and economic planning. This has led to the development and implementation of site attractivity and economic efficiency measures. Attractivity models incorporating a site's natural and artificial features are used to provide a comparative ranking of present and proposed tourist developments. Both cross-sectional and time studies indicate that the development of the tourist sector is not an efficient method whereby regional socio-economic disparties can be reduced.

Direct Estimates of Unemployment Rate and Capacity Utilization in Macroeconometric Models

The degree of resource utilization is an important and strategic economic concept in giving anl overall measure of economic efficiency. The problem of measuring capacity utilization as an aggregative statistical indicator of resource utilization is an old one that hlas never been handled in a1 definitive way. In this paper, we do not claim to be definitive., but we do hope to have contributed to an understanding of some of thie issues and offer a plausible, but tentative, solution. At the same time, we try to clarify the role of the aggregate production function or groups of them in the specification and application of a macrocconometric model. As will be made clear in what follows, the aggregate production function will be seen to play a key role in estimating and defining capacity utilization. Unemployment deals with utilization of a single production factor, while capacity utilization deals with all factors, in some sense.3; therefore we shall attempt to forge a link between these two separate measures --the unemployment rate and the rate of capacity utilization. Capacity utilization has been estimated as a statistical series in a variety of ways and there are some highly significant differences among the various measures available.' From a theoretical viewpoint, full capacity output might be defined in terms of the cost function or the production function. In the former case, it is defined to be the point of minimum average cost. There can be alternative concepts in the short run and the long run, corresponding to minimum cost points on either the short run or the long ruen cost function. These are economic concepts of capacity because they involve unit factor costs in determining macro cost functions. These are used to get at the output levels for minimum cost. With the help of the macro production function, a physical measure of full capacity output can be designed. In the simplest case let us write

The Economics of Urban Tree Inventory Systems: Fort Worth, a Case Study

Costs associated with establishing a computerized urban tree inventory system are estimated using data developed during the establishment of METRIS in Fort Worth. Economic efficiency measures are identified and applied to system development. The question of economic feasibility for the development and use of such systems is addressed.

Differentially Exploited Labor: A Marxian Theory of Discrimination

This paper develops the Marxian theory of value and exploitation for an economy where workers are exploited at different rates due to discrimi nation which is independent of their productivity. The purpose of the paper is to begin an analysis of the formal structure underlying Marxian concepts of dis crimination and labor market segmentation. First, the classical Marxian theory of exploitation is shown to hold for the model. Then, the concept of the wages- profit surface is developed, and the shape of this surface is characterized. Know ledge of this surface allows some discussion of the reasons for the emergence and persistence of discrimination in capitalist economies — reasons which are much more akin to the Marxian divide-and-conquer notions than the various neoclas sical notions. Finally, a result is presented philosophically akin to the Cambridge results on the rate of profit: it is shown that in economies with discrimination the profit rate cannot be simply interpreted as a measure of economic efficiency. Furthermore, it does not just measure the inter-class distribution of income, since it also depends on how different groups of workers are allocated among firms.