Input Distance Function Research Articles

Measuring energy-specific technical efficiency based on input distance function

Measuring energy-specific technical efficiency based on input distance function

Access to credit and scale efficiency: Evidence from family farms in East China

Productivity improvement is an important driving force for developing countries to accelerate the development of agricultural sectors and promote the transformation of economic structures. However, few studies have focused on the impact of credit access on family farms’ scale efficiency, a contributor to productivity changes. We address this gap by using data collected from a survey of 565 family farms in East China. The stochastic frontier input distance function (SFIDF) is utilized to measure the scale efficiency, and the endogenous switching regression model (ESRM) is employed to estimate average treatment effect (ATT) and address the selection bias. The empirical results show that the average scale efficiency is 0.768, with credit users and non-users averaging 0.802 and 0.737, respectively. Most family farms operate below their optimal production scale, and only about 14.5% of family farms exceed this optimal scale. Access to credit has significantly improved the scale efficiency of family farms and has not contributed to the excessive pursuit of scale expansion for financial subsidies. These findings are validated by robustness checks. The conclusions of our study have important implications for developing countries seeking to increase financial support for agricultural development.

Measurement of efficiency and its drivers in the Chilean banking industry.

This paper estimates efficiency measures for the banking system in Chile for the period 2000-2019. In contrast to previous studies, we use input-distance functions, introduce the nonparametric slack-based model, and choose the intermediate inputs approach in determining inputs and outputs. Our results suggest that the Chilean system has achieved relatively high levels of efficiency, although with no significant variation over the sample period. Ownership (government, foreign and public) and size had a positive impact on efficiency. On average, mergers and acquisitions seem to have targeted highly efficient banks in order to improve the overall efficiency of the controlling institution in the short run. Other sources of efficiency gains could be an increase in bond funding or a reduction in expenses and capital holdings. The latter could be induced by deepening the local derivatives market.

Determining scale and scope economies in Korean private universities: an input distance function approach

Determining scale and scope economies in Korean private universities: an input distance function approach

Endogenous Bad Outputs and Technical Inefficiency in U.S. Electric Utilities

In this paper, we consider a simultaneous modeling of good and bad outputs. We use an input distance function (IDF) with endogenous inputs as well as endogenous bad outputs, which is novel in the literature. Moreover, we model input efficiency to depend on the production of bad outputs which allows us to investigate whether emissions of pollutants (bad outputs) are related to technological performance (technical efficiency). We also model production of each bad output with a spatial structure separately, each depending on production of good outputs, inputs and other exogenous variables. These bad output production functions allow us to estimate both direct and indirect effects of good output on the production of bad outputs, which may be of special interest because they show the cost (to the society) in terms of releasing pollutants to the environment in order to increase production of good outputs. We apply the new technique to a data set on U.S. electric utilities with four bad outputs, three inputs and two good outputs. We used a Bayesian technique to estimate the model which is a system consisting of the input distance function, reduced form equations for each input, dynamics of inefficiency and bad output production technology—separately for each. Empirically, bad outputs are found to affect inefficiency positively. Percentage increases in inefficiency due to a percentage increase in each bad output are found to vary from 0.225% to 0.42%. Energy prices are found to be positively related to inefficiency. From the spatial specifications of bad outputs, we find that the spillover effects of increasing production of good outputs account for the majority of the total effect, indicating that neighborhood effects are more important than own effects. This means, the neighboring utilities played a crucial role indicating “contagion” of practices.

A ray-based input distance function to model zero-valued output quantities: Derivation and an empirical application

A ray-based input distance function to model zero-valued output quantities: Derivation and an empirical application

Evaluating Yield Gap and Yield Improvement Potential in the Dairy Sector of Pakistan

A survey data of 600 dairy farms obtained from the largest dairy cluster in Pakistan’s Punjab was used to provide new evidence on the yield gap and yield improvement potential of dairy farms producing milk and meat. The yield gap was estimated by the frontier-based input distance function analysis. The results indicated that a large yield gap exists in the sample where an average dairy farm has a yield improvement potential of 55 percent. By closing the gap, an average dairy farm can increase yearly production of fat-corrected milk (FCM) by 120,036 kg and non-milking herd for meat by 25 heads. The evidence also shows that small farms (< 25 herd-size) are technically more efficient than those of medium (26 ≤ herd-size ≤ 50) and large farms (> 50 herd-size). The study finds clear evidence of an efficiency boost for keeping a higher share of non-milking to milking herd, a greater proportion of exotic cows to local breeds, and a higher farm-gate price of milk, which can all trigger efficiency gains. Policymakers hence have room to provide adequate intervention strategies that can help in enhancing efficiency.

What drives the productivity growth of New Zealand district health boards: technology, efficiency, or scale?

Using the longitudinal data on New Zealand District Health Boards (DHBs) for the period 2011-2018, the total factor productivity (TFP) change and its components are evaluated using an input distance function and a cost function. The empirical results indicate that TFP decreased at an average rate of between 0.73 and 0.98 per cent annually, mainly due to the deterioration of the technological component, which averaged close to −2 per cent between 2011 and 2018. However, contrary to the technological component, the scale component improved every year at an average rate of 1–1.16 per cent, thus cushioning some of the effects of the deteriorating technological component of the TFP. The TFP also posted a one-off positive growth in 2016, following the nationwide implementation of an ‘elective initiative’ programme in the 2015–2016 year, which raised both the scale and efficiency (technical and cost) components to their highest levels. Furthermore, the study also demonstrates the consistency in the effect of scale and technological change components on the TFP under both primal and dual approaches.

Correcting for productivity growth misspecification: A local likelihood estimation in global banking

AbstractDecomposing firm productivity has been challenging for some time. We propose a flexible functional form for total factor productivity that treats misspecification and endogeneity. The model also treats heteroscedasticity. Our productivity measure nests both the input distance function and output distance function. We provide details of a novel Local Likelihood estimation, a non‐parametric technique, to estimate productivity which also has excellent finite‐sample properties. In an empirical application, we measure bank productivity at the global level. Results show that productivity is correctly identified, and the flexibility of our methodology allows to estimate the impact of equity and nonperforming loans on bank productivity. Technology has positively contributed to productivity. However, nonperforming loans, bank risk‐taking and raising capital have had the opposite effect.

The role of green total factor productivity to farm-level performance: evidence from Norwegian dairy farms

In the economics literature, measuring the performance of a dairy farm with a total productivity index is common practice. Previous research, on the other hand, has been chastised for failing to account for agricultural emissions in their models when calculating resource use productivity. This study estimated green total factor productivity (GTFP) accounting for dairy farms' CH4 emission to the model. The study is based on unbalanced panel data from 692 specialized dairy farms from 1991 to 2020. To estimate GTFP and its components using multiple input–output environmental production technologies, a stochastic input distance function and a Translog model were used. The average annual growth rate of green production over the research period was 0. 032%. The main reason for the increase in GTFP was positive scale change contributions. Technological change (− 0.031% per year) and efficiency change (− 0.002% per year), on the other hand, had a detrimental effect on GTFP.

Assessing complementary synergies for integrated crop–livestock systems under conservation agriculture in Tunisian dryland farming systems

The aim of this paper is twofold. The first objective is to measure the technical efficiency of mixed crop-livestock (CL) smallholder producers operating under conservation agriculture systems in Tunisian rainfed areas. The second objective is to explore complementarities, synergies, and economies of diversification across the different production system components of these crop-livestock producers using the cross-partial derivative framework of output variables in the distance function. A simple random sampling process was employed to select and survey 59 CL smallholders operating under conservation agriculture. The collected data were analyzed using a stochastic input distance function in which synergies were estimated based on the second cross-partial derivative concept of output variables in the distance function. Results show that technical inefficiencies are significant in integrated crop-livestock systems, and there is evidence that economic diversification provides a productivity buffer against climate change threats. As a sustainable intensification strategy, this integrated system also offers a potential advantage. The results further contribute to the debate on crop diversification vs. specialization. Although an enhanced system integration could be a financially and ecologically viable option for mixed crop-livestock systems, more pathways for profitable and viable diversification of cereal-based or orchard-based systems remain to be explored.

The Effect of Good Agricultural Practices on the Technical Efficiency of Chili Production in Thailand

While recognition of the positive influence of good agricultural practices (GAP) on reducing negative externalities due to conventional farming and providing more export opportunities is growing, there is some doubt about the effects of GAP on the economic performance of chili farms. In this regard, this study’s principal objectives are to assess the impact of GAP and to examine farm-specific and environmental factors regarding the technical efficiency (TE) of chili farms in Thailand. This study employed a stochastic meta-frontier input distance function to measure and explore the effects of farm-specific and environmental factors on TE using 2018 farm-level survey data from Thai chili farms. The sample of 100 farms includes GAP and non-GAP farms. The empirical results highlight three critical findings. First, there is confirmation that GAP positively influence the TE of chili farms. Second, family labor intensity and small farm size also positively impact the TE of farms. At the same time, completion of a technical training course positively affects the TE of non-GAP farms only. Finally, education, experience, training courses, and crop diversification negatively affect the TE of GAP farms only. Thus, policymakers need to focus on GAP adoption and farm-specific factors to promote the sustainable development of Thai chili farms.

Effects of management practices for using the SaaS system on performance of hospitality firms in Norway

ABSTRACT The earlier literature either measured management practices in terms of the general management traits or did not account for the effects on firm performance. However, the transformation of the Enterprise Resource Planning (ERP) systems from general to more specific practices, the counteractive managerial goals and standardization and measurement issues requires the measures with more specific goals in a specific setting. The current paper aims at filling the gaps in measuring management practices and its effects on production costs and technical efficiency using daily data of 92 hospitality firms, i.e. chain hotels, in Norway from 2012 to 2014. We measured management practices in an index constructed from multiple criteria that capture managers' user patterns of the software-as-a-service (SaaS) systems. The empirical model identified inefficiency using a translog stochastic frontier input distance function (IDF). The findings show, on average, a 10% improvement in management practices increases production costs by 1.2%, but it improves efficiency by 0.9%. However, the marginal effect of improved management practices on the production cost is found to be U-shaped, while the marginal impact on inefficiency gradually declines to zero. The study also provides managerial implications on how to effectively use the ERP system and improve firm performance.

ESG complementarities in the US economy

This paper investigates ESG from the perspective of changes in input elasticities of substitution and complementarity. Rather than compute these elasticities from the cost function, we compute them from the Input Distance Function (IDF). Our data are from Refinitiv Eikon Datastream database. We focus on the US economy due to her global role in the world economy and hence spillover effects of uncertainties on the rest of the world. The data consist of 5,798 companies comprising 38 US industries that span for 12 years from 2009 to 2020 and include: (i) financial data on sales, capital and employees; (ii) two financial ratios and (iii) three main ESG indicators. We compute Antonelli Elasticity of Complementarity (AEC) and Allen-Uzawa Elasticity of Substitution (AES) from the translog of IDF function. We find that the standard inputs have positive AEC elasticities; however, ESG cross-elasticities exhibit negative signs, classifying them as q-substitutes. Therefore, an increase in one of the ESG values leads to a decrease in the marginal value of the other. On the other hand, AES elasticities have a negative sign only for the Governance-Environment “doublet'; the rest of the pairs are positive implying that they are p-complements.

Productivity analysis of Sri Lankan cooperative banks: input distance function approach

This study examined how Sri Lankan cooperative banks performed in changing markets and environmental conditions, including the COVID-19 pandemic. We analyzed quarterly financial data for 103 cooperative rural banks (CRBs) between 2016 and 2020 to estimate technical efficiency and total factor productivity (TFP) using the input distance function with multiple outputs. The technical efficiency (TE) of CRBs declined from 99 to 85% over the period and differences in TE between banks increased substantially. TFP decreased substantially, by 38%, so for further analysis, TFP change was separated into a three component-scale change, technical change, and technical efficiency change. According to TFP decomposition, the dominant factor contributing to this decline was the scale change. The loan relief program enacted during the COVID-19 crisis, as well as increased competition in the market, may have reduced the size of operations, thus possibly contributing to this decline. The second component, technical change was overall positive, but minute likely due to the reluctance of cooperative banks’ to adopt new technologies. The third component technical efficiency change was negative throughout the period, likely due to increased operating expenses and non-performing loans. These findings suggest the need for a more market-sensitive government intervention, adaptation of modern technology, and comprehensive human resource development to enhance the performance of CRB operations.

Estimating the efficiency in overall energy consumption: Evidence from Slovenian household-level data

This study measures the efficiency of energy consumption in the residential sector in Slovenia. It extends the existing research on the estimation of electricity consumption efficiency by considering the consumption efficiency of multiple energy sources used in households. The detailed disaggregated data from two cross-sectional surveys conducted in the years 2010 and 2014, resulting in a sample of 6882 Slovenian households, is used in the estimation. The study includes energy services in a stochastic frontier framework through a sub-vector Shephard energy input distance function. Several household characteristics are considered in the estimation of energy consumption to control for household heterogeneity. The results reveal that Slovenian households have substantial potential for energy savings, which can be achieved through the replacement of inefficient energy-using capital stock and changed behavioural patterns. Specifically, we found the average inefficiency of energy consumption in Slovenian households to be 25.1% in 2010 and 23.3% in 2014, indicating a slight improvement in residential energy efficiency in the observed period, which is also in line with the EU energy-efficiency targets.

How much does it cost to collect recyclable and residual waste in medium-income countries? A case study in the Chilean waste sector

ABSTRACT Improper municipal solid waste (MSW) management leads to contamination of water, soil and air with negative impacts on human health. Moreover, not dealing with residual waste has huge implications for meeting circular economy targets. Understanding how much it costs could lead to a better quality of service and boost environmental sustainability. This study estimates an input distance function using econometric techniques to measure the technical efficiency of the MSW sector in Chile. This approach further allows us to estimate the shadow price of residual waste in terms of total costs. The results indicated that the average technical efficiency of the waste sector was 0.592. This means that the potential savings in costs and residual waste among municipalities could be at the level of 40.8%. Large divergences among municipalities were found since efficiency scores ranged between 0.029 and 0.863. It is found that for 53% of the municipalities evaluated, efficiency scores varied between 0.61 and 0.80. On average, the cost of reducing residual waste was 81.10 US $ per kilogram. This means that on average the cost of preventing one more kilogram of residual waste not being collected and recycled was 81.10 US $. It was also found that on average as population density increased, the shadow price of residual waste increased as well.Implications: The study provides a methodology that allows the policy makers to estimate the efficiency of the solid waste sector where limited available statistical data usually exists in developing and medium-income countries. They have the opportunity to understand what drives costs and identify the best and worst performers. This information is essential to develop local initiatives to enhance waste recycling and therefore, achieving the targets established at national level. Managers can also see if there are other operating factors that could influence performance such as population density. The proposed methodology allows integrating other exogenous variables that might be interesting to policy makers. For instance, a tourism index could be included in the assessment to evaluate whether tourism impacts on the efficiency of municipalities in the provision of municipal solid waste services and therefore, to analyze the implementation of an eco-tax for tourists.

Uncovering hidden capacity in overall equipment effectiveness management

An ongoing challenge in manufacturing management is to maximize the output volume from limited production capacity. Total productive maintenance (TPM) is a promising strategy to enhance machinery efficiency in factories by reducing downtime, speed, and quality losses. The associated metric of TPM is overall equipment effectiveness (OEE), which comprises three components, namely availability, performance, and quality, that measure the various aspects of production losses. However, output is restricted by the design cycle time in OEE, so purely improving OEE could only yield limited output increase. We argue that excess motion and processing in the ideal design cycle lead to design cycle losses. If these non-value-added activities as hidden capacity could be eliminated, production output would have considerable increment without extra investment. Adopting the input distance function approach, we show that the improvements gained from enhancing overall equipment availability and performance are different from the capacity unleashed by eliminating the design cycle losses. Accordingly, we propose value-added overall equipment effectiveness (VAOEE) as a novel metric to measure all the identified losses in search of hidden capacity. We provide three examples to demonstrate application of our novel productivity improvement approach in both semi-automatic and manual production in a non-continuous based plant.

Comparison of potential CO2 reduction and marginal abatement costs across in the China and Korea manufacturing industries

Here, we use an input distance function approach to determine the shadow price of carbon dioxide (CO2), technical efficiency and potential for emission reductions of the industrial sectors of China and Korea, and impact of carbon trading on costs. Data from 20 industries in the manufacturing sectors of South Korea and China were analyzed during 2015–2019. The potential for CO2 emission reductions and cost-saving effects of emissions trading were compared between the two countries. The average technical efficiency score of 20 manufacturing industries in Korea was 0.71, indicating that production costs could be reduced by almost 30%, while for China, the potential cost savings were 4% higher. The average marginal abatement cost in Korea was estimated as US$6.46/ton, while the weighted average marginal abatement cost for CO2 emissions (p^us), was US$15.1/ton. For China, the respective values were similar, at US$3.21/ton and US$6.57/ton.

Productivity and efficiency in Czech agriculture: Does farm size matter?

This paper deals with the sources of total factor productivity (TFP), namely technical efficiency, scale efficiency, and technological change, considering the size of agricultural producers and using balanced panel data in the period 2014–2018 drawn from the Farm Accountancy Data Network (FADN) database for three sectors of Czech agriculture – cereals, milk, and beef. The investigation is based on the stochastic frontier (SF) modelling of an input distance function (IDF) with four error components (heterogeneity, statistical noise, persistent and transient inefficiency). The sector-specific models are estimated by a four-step estimating procedure with a system generalised method of moments (GMM) estimator to address the endogeneity problem. The results reveal inter- and intra-sectoral differences in productivity drivers. In particular, the smallest producers lag considerably behind the largest ones due to the scale effect (SEC). While large farms should focus on technological change, improvements in scale and technical efficiency have been identified as the main sources of coping with productivity losses for small farmers.