Multi-output Distance Function Research Articles

Sustainable economic growth and energy security nexus: A stochastic frontier analysis across OECD countries

This study aims to provide a comprehensive picture of the sustainable economic growth undertaken by 22 OECD countries from 2005 to 2021. Sustainable economic growth is conceived as environmental-economic efficiency, that is the ability to increase GDP while reducing greenhouse gas (GHG) emissions. An efficiency effect frontier model is employed to simultaneously estimate the production frontier, technical inefficiency, and the effects of a composite set of institutional drivers that includes environmental taxation, economic globalization, and energy security. This study makes several contributions. Firstly, it expands upon the traditional single-output stochastic frontier model by incorporating a multi-output distance function. Secondly, it includes GHG emissions as an undesirable output in the analysis, providing unbiased assessments of sustainable economic growth. Thirdly, it explores the effects of an under-investigated institutional variable that has become crucial amid the current geopolitical uncertainty: the energy self-sufficiency represented by the energy import independence. Empirical results shed light on a decreasing trend in environmental-economic efficiency that started in 2009 and worsened during the Covid-19 pandemic. Furthermore, environmental taxation and economic globalization have curbed efficiency. Lastly, energy self-sufficiency has been revealed as a crucial driver to enhance the green growth of OECD countries.

Technical efficiency in Irish public hospitals: a multi-output distance function SFA approach

Technical efficiency in Irish public hospitals: a multi-output distance function SFA approach

Electricity Sector Reform Performance in Sub-Saharan Africa: A Parametric Distance Function Approach

Electricity sector reforms have transformed the structure and organization of the sector worldwide. While outcomes of reforms in developed and developing countries have been extensively examined, there is limited analysis of the reforms in sub-Saharan Africa (SSA). This paper analyses the performance of electricity sector reforms in 37 SSA countries between 2000 and 2017. We use a stochastic frontier analysis approach to estimate a multi-input multi-output distance function to assess the impact of reform steps and institutional features on indicators of investment and technical efficiency. Results indicate a positive correlation between reforms and installed generation capacity per capita, plant load factor, and technical network losses. The presence of an electricity law, sector regulator, vertical unbundling, and private participation in the management of assets were positively correlated with reform performance. Perceptions of non-violent institutional features such as corruption, regulatory quality and governance effectiveness do not seem to have had a significant effect, but perceptions of political stability, violence, and terrorism influenced reform outcomes. We conclude that a workable reform in SSA involves vertical unbundling with an electricity law, a regulator, and private ownership and management of assets where feasible. However, positive outcomes go hand in hand with higher technical network energy losses which indicates higher investment in the generation segment than in the network segment. Hence, emphasis should be placed on decoupling the energy losses from power generation.

Technical efficiency in Irish public hospitals: a multi-output distance function SFA approach

Technical efficiency in Irish public hospitals: a multi-output distance function SFA approach

Improving public hospital efficiency and fiscal space implications: the case of Mauritius

BackgroundGeneral Government Health Expenditure (GGHE) in Mauritius accounted for only 10% of General Government Expenditure for the fiscal year 2018. This is less than the pledge taken under the Abuja 2001 Declaration to allocate at least 15% of national budget to the health sector. The latest National Health Accounts also urged for an expansion in the fiscal space for health. As public hospitals in Mauritius absorb 70% of GGHE, maximising returns of hospitals is essential to achieve Universal Health Coverage. More so, as Mauritius is bracing for its worst recession in 40 years in the aftermath of the COVID-19 pandemic public health financing will be heavily impacted. A thorough assessment of hospital efficiency and its implications on effective public health financing and fiscal space creation is, therefore, vital to inform ongoing health reform agenda.ObjectivesThis paper aims to examine the trend in hospital technical efficiency over the period 2001–2017, to measure the elasticity of hospital output to changes in inputs variables and to assess the impact of improved hospital technical efficiency in terms of fiscal space creation.MethodsAnnual health statistics released by the Ministry of Health and Wellness and national budget of the Ministry of Finance, Economic Planning and Development were the principal sources of data. Applying Stochastic Frontier Analysis, technical efficiency of public regional hospitals was estimated under Cobb–Douglas, Translog and Multi-output distance functions, using STATA 11. Hospital beds, doctors, nurses and non-medical staff were used as input variables. Output variable combined inpatients and outpatients seen at Accident Emergency, Sorted and Unsorted departments. Efficiency scores were used to determine potential efficiency savings and fiscal space creation.FindingsMean technical efficiency scores, using the Cobb Douglas, Translog and Multi-output functions, were estimated at 0.83, 0.84 and 0.89, respectively. Nurses and beds are the most important factors in hospital production, as a 1% increase in the number of beds and nurses, result in an increase in hospital outputs by 0.73 and 0.51%, respectively. If hospitals are to increase their inputs by 1%, their outputs will increase by 1.16%. Hospital output process has an increasing return to scale. With technical efficiencies improving to scores of 0.95 and 1.0 in 2021–2022, potential savings and fiscal space creation at hospital level, would amount to MUR 633 million (US$ 16.2 million) and MUR 1161 million (US$ 29.6 million), respectively.ConclusionFiscal space creation through full technical efficiency, is estimated to represent 8.9 and 9.2% of GGHE in fiscal year 2021–2022 and 2022–2023, respectively. This will allow without any restrictions the funding of the national response for HIV, vaccine preventable diseases as well as building a resilient health system to mitigate impact of emerging infectious diseases as experienced with COVID-19.

Distance functions, bank output, and productivity

The current approach to determining banking productivity using multioutput distance functions or Malmquist indices is not appropriate. This problem is specific to banking and involves a balance sheet constraint. A solution involves respecifying the distance function; measuring banking output via user cost rather than balance sheet values; and including the output service flow from bank liabilities. The last two adjustments follow what is now done by government agencies for the banking industry in the national accounts. Productivity results from current distance function specifications are contrasted with our proposed solution to the balance sheet constraint using U.S. banking data from 2001, 2005, and 2010. Changes in bank productivity over this period are due primarily to interest rate changes associated with monetary policy, rather than technical change or improvements in efficiency. This is similar to the variation in manufacturing productivity over the business cycle resulting from changes in excess capacity and disruption of business plans.

Impacts des services sociaux sur la productivité agricole au Burkina Faso : approche par la fonction distance output

Dans cet article, un modèle économétrique de la fonction distance multi-outputs a été utilisé pour analyser les effets des services sociaux sur l’efficacité technique des exploitations agricoles burkinabè. Les résultats montrent que le nombre d’années d’éducation formelle reçu par le chef de ménage, l’expérience de la pratique agricole, la fréquentation des centres de santé moderne et les services de soutien à la production agricole ont des effets positifs significatifs sur l’efficacité technique.

Measuring efficiency of governmental hospitals in Palestine using stochastic frontier analysis.

BackgroundThe Palestinian government has been under increasing pressure to improve provision of health services while seeking to effectively employ its scare resources. Governmental hospitals remain the leading costly units as they consume about 60 % of governmental health budget. A clearer understanding of the technical efficiency of hospitals is crucial to shape future health policy reforms. In this paper, we used stochastic frontier analysis to measure technical efficiency of governmental hospitals, the first of its kind nationally.MethodsWe estimated maximum likelihood random-effects and time-invariant efficiency model developed by Battese and Coelli, 1988. Number of beds, number of doctors, number of nurses, and number of non-medical staff, were used as the input variables, and sum of number of treated inpatients and outpatients was used as output variable. Our dataset includes balanced panel data of 22 governmental hospitals over a period of 6 years. Cobb–Douglas function, translog function, and multi-output distance function were estimated using STATA 12.ResultsThe average technical efficiency of hospitals was approximately 55 %, and ranged from 28 to 91 %. Doctors and nurses appear to be the most important factors in hospital production, as 1 % increase in number of doctors, results in an increase in the production of the hospital of 0.33 and 0.51 %, respectively. If hospitals increase all inputs by 1 %, their production would increase by 0.74 %. Hospitals production process has a decrease return to scale.ConclusionDespite continued investment in governmental hospitals, they remained relatively inefficient. Using the existing amount of resources, the amount of delivered outputs can be improved 45 % which provides insight into mismanagement of available resources. To address hospital inefficiency, it is important to increase the numbers of doctors and nurses. The number of non-medical staff should be reduced. Offering the option of early retirement, limit hiring, and transfer to primary health care centers are possible options. It is crucial to maintain a rich clinical skill-mix when implementing such measures. Adopting interventions to improve the quality of management in hospitals will improve efficiency. International benchmarking provides more insights on sources of hospital inefficiency.

Combining performance measures to investigate capacity changes in fisheries

The Common Fisheries Policy (CFP) aims to achieve a balance between the European fleet capacity and the resources available. This can be realized either by temporarily reducing the fishing effort (i.e. capacity utilization) or quotas in the hope of increasing the resources available or reducing the actual fishing capacity. In both cases, the relationship between effort indicators and capacity needs to be resolved in order for the manager to introduce the right interventions. Previous studies have estimated these relationships in multi-species fisheries using either a multi-output distance function approach (DFA) or with a second stage Data Envelopment Analysis (DEA). Both approaches have advantages and disadvantages. In this article, DEA and DFA are combined to reduce noise in the estimation and to establish more useful interpretations for the manager. The article compares the traditional DFA with the alternative approach for the Danish North Sea demersal trawlers. The alternative approach improves the estimation results and provides better estimates of efficiency scores, compared to the unadjusted DFA. Furthermore, the analyses suggest that the demersal trawlers have a limited ability to substitute catches of cod, plaice and Nephrops and that gross tonnage is a more consistent indicator of fishing capacity than engine power.

Reducing Pollution Levels by the OECD Countries: Who Should Bear the Brunt?

We apply Shephard’s dual lemma and the concept of multi-output distance function to the estimation of marginal abatement costs of CO2 emissions reduction in the developing part of the East Asian and Pacific region, also including Korea and Japan. We find that abatement costs are the highest for Japan, while they are the cheapest for the small island states and Mongolia. While the social planner would allocate the task of reducing the regional emissions levels by 30% (stipulated by the Copenhagen accord) to countries with the lowest marginal abatement costs, this approach will require complete elimination of industrial sector in most of the region’s countries. We therefore suggest a more realistic scenario that involves placing a cap on the maximum amount of reduction by each individual country. In the long run, we argue that command and control policies of setting reduction targets will be less effective compared to the ones aimed at the reduction of marginal abatement costs.

Provision of environmental output within a multi-output distance function approach

This paper redefines technical efficiency by incorporating provision of environmental goods as one of the outputs of the farm. The proportion of permanent and rough grassland to total agricultural land area is used as a proxy for the provision of environmental goods. Stochastic frontier analysis was conducted using a Bayesian procedure. The methodology is applied to panel data on 215 dairy farms in England and Wales. Results show that farm efficiency rankings change when provision of environmental outputs by farms is incorporated in the efficiency analysis, which may have important political implications.

Targeting ability and output controls in Australia's multi-species Northern Prawn Fishery

The degree to which individual species can be targeted will influence how quotas are set in multi-species fisheries managed through individual transferable quotas (ITQs). In this paper, a multi-output distance function is used to examine fishers' ability to control output mix in a fishery about to move to ITQ management. The parameters of the model are estimated using Bayesian techniques, with monotonicity and homogeneity conditions imposed to ensure theoretical consistency. The results suggest that the ability of fishers to change their output mix is relatively limited, and a single quota may be sufficient to control catches of the key species. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

Estimating Targeting Ability in Multi-Species Fisheries: A Primal Multi-Output Distance Function Approach

<i>In this paper, we estimate a multi-output distance function for two North Sea fleet segments and derive output elasticities of substitution to examine the potential for changing catch composition though targeting fishing activity. We find that this ability differs between fleet segments, and also within fleet segments due to differences in vessel characteristics, with larger vessels appearing to be more able to influence their catch composition than smaller vessels. We argue that failure to quantify and integrate these technical interactions in the construction of management instruments for fisheries regulation may result in increased discarding and/or illegal fishing.</i> (JEL Q22)

Output Substitution in Multi-Species Trawl Fisheries: Implications for Quota Setting

In most multi-species fisheries managed through output controls, total allowable catches (TACs) are set primarily on the basis of biological considerations, usually on a species by species basis. An implicit assumption of management is that fishers are able to adjust their product mix in line with these quotas. If this is not the case, then over-quota catch occurs, leading to either illegal landings or discards. In either case, the effectiveness of the TAC in conserving the resource is reduced. In this paper we show that in the case of multi-species fisheries that exhibit jointness in production, setting TACs on an individual species' basis is inappropriate. In particular, we quantify technical interactions through the estimation of a multi-output distance function for the UK North Sea beam and otter trawl fisheries, and find that in most cases, the potential of substitutability between the main and alternative species is relatively small. We argue that failure to quantify and integrate these technical interactions in the construction of management instruments for fisheries regulation, may result in increased discarding, illegal fishing and potentially lower than expected future yields.

Distance vs. Ray Functions: An Application to the Inshore Fishery of Greece

The objective of this paper is to compare the empirical results from two alternative representations of a stochastic multi-output technology using trip-level data of the inshore fleet in Greece. The comparisons involve technical efficiency scores, structure of the underlying technology, and technical efficiency determinants. The stochastic multi-output distance function and the stochastic ray production function indicate the same technology structure, which is non-separable in inputs and outputs, non-homothetic in inputs, and exhibits increasing returns to scale. The relative rankings of efficiency scores are very similar. The distributions of efficiency scores, however, are different, and the ray production frontier yields systematically lower technical inefficiency levels than the multi-output distance function.

Technical efficiency of European railways: a distance function approach

This study has two principal objectives. The first objective is to measure and compare the performance of European railways. The second objective is to illustrate the usefulness of econometric distance functions in the analysis of production in multioutput industries, where behavioural assumptions such as cost minimization or profit maximization, are unlikely to be applicable. Using annual data on 17 railways companies during 1988–1993, multioutput distance functions are estimated using corrected ordinary least squares (COLS). The resulting technical efficiency estimates range from 0.980 for the Netherlands to 0.784 for Italy, with a mean of 0.863. The distance function results are also compared with those obtained from single-output production functions, where aggregate output measures are formed using either total revenue or a Tornqvist index. The results obtained indicate substantial differences in parameter estimates and technical efficiency rankings, casting significant doubt upon the reliability of these single-output models, particularly when a total revenue measure is used to proxy aggregate output.

A comparison of parametric and non-parametric distance functions: With application to European railways

In this paper we use multi-output distance functions to investigate technical inefficiency in European railways. The principle aim of the paper is to compare the results obtained from the three alternative methods of estimating multi-output distance functions. Namely, the construction of a parametric frontier using linear programming; data envelopment analysis (DEA) and corrected ordinary least squares (COLS). Input-orientated, output-orientated and constant returns to scale (CRS) distance functions are estimated and compared. The results indicate a strong degree of correlation between the input- and output-orientated results for each of the three methods. There are also significant correlations observed between the results obtained using the alternative estimation methods. The strongest correlations being between the parametric linear programming and the COLS methods. Finally, the paper concludes with the suggestion that a combination of the technical efficiency scores, obtained from the three different methods, be used as the preferred set of scores. This idea is borrowed from the time-series forecasting literature.