Non-parametric Frontier Analysis Research Articles

Planning improvements through data envelopment analysis (DEA) benchmarking based on a selection of peers

Incorporating preferences on suitable peers into benchmarking analyses may ensure the setting of appropriate targets, which enable designing plans for improving performance that are aligned with management. This paper deals with target setting in situations where decision makers (DMs) have previously made a selection of peer candidates for the benchmarking of a given organization. A first approach is developed within the framework of conventional Data Envelopment Analysis (DEA), which is the technology mostly used in non-parametric frontier analysis. It provides targets from reference sets consisting of peer candidates that span a face of the strong efficient frontier of the production possibility set (PPS). These targets result from solving a DEA-like model, thus preventing from the need to identify all of the maximal efficient faces (MEFs) of the DEA frontier. We also propose a second approach where the convexity in DEA is somehow relaxed to allow additionally for reference sets consisting of candidates that are Pareto-efficient, provided that their convex hull is not dominated by other units. In that sense, the targets found can be seen as representing best practices. This approach broadens the range of alternatives when planning improvements, and may eventually provide closer targets.

Advertising expenditures and unobserved heterogeneity in bank performance: A conditional nonparametric frontier analysis

AbstractThis study utilizes a probabilistic production analysis framework to explore the relationship between advertising expenditure and operational efficiency in major U.S. banks (2001–2020). Findings reveal a non‐linear, positive correlation between advertising spending and banks' technological innovation capacity. Higher advertising investments enhance banks' competitiveness and drive technological progress. The model considers unobserved heterogeneity, incorporating factors like socio‐economic profiles and past non‐performing loans. Robustness analysis across sub‐periods confirms the enduring positive impact of advertising on bank performance.

Environmental performance assessment in the transport sector using nonparametric frontier analysis: A systematic literature review

The increasing environmental issues relating to carbon dioxide emissions are a primary concern globally and have triggered excessive research to investigate possible ways to reduce such emissions, especially in the transport sector, as initiated by Sustainable Development Goal (SDG) 13. This study investigates the importance of the nonparametric frontier analysis methodology, particularly Data Envelopment Analysis, in measuring environmental performance in the transport sector, emphasising how EU countries are working on meeting the recommendations of SDG 13. Researchers and policymakers have indisputably identified the transport sector as the primary source of global emissions. This paper aims to underline the significant environmental trends in the transport sector, including research topics, key works, research methods, future research direction, and recommendations to explore possible global or regional research agendas. In this regard, we mainly focus on various techniques used to measure the environmental performance within the transport sector. This research considers 186 articles from 46 journals. The survey's main findings show the ever-increasing attention paid to studying the transport sector's emissions, emphasising road and passenger car CO2 emissions as the major source of emissions in the transport sector. In the existing literature, the top three frequently adopted methodologies for measuring environmental performance in transportation include Data Envelopment Analysis, emission analysis, and simulation. This study shows research gaps and future directions on environmental performance assessment within the transport sector, particularly maritime and aviation.

Legality rating and corporate efficiency: evidence from a conditional nonparametric frontier analysis

Promoting legality and productivity is a central issue in modern economies. In this paper, we investigate the implications of a public policy that aims at achieving these goals through the adoption of the so-called legality rating (LR). The latter reduces corporate risk uncertainty by abating asymmetric information between companies that use good legal, fiscal and ethical practices and the credit system. We match companies whose legal and ethical practices have been certified by the Italian government—through the assignment of the LR—with a sample of unrated firms, and apply recent advances in nonparametric frontier analysis to assess the economic performance. We highlight a positive relationship between legality rating and firms’ production efficiency. Our findings also show that legality rating policy is an effective tool to enhance inter-regional technological catching-up of businesses.

The effect of NPLs management in the PIIGS banking efficiency: an approach using non-parametric partial order-m frontiers

PurposeThis study focuses on the banking systems evaluation in Portugal, Italy, Ireland, Greece and Spain (known as the PIIGS) during the financial and post-financial crisis period from 2009 to 2018.Design/methodology/approachA conditional robust nonparametric frontier analysis (order-m estimators) is used to measure banking efficiency combined with variables highlighting the effects of Non-Performing Loans. Next, a truncated regression is used to examine if institutional, macroeconomic, and financial variables affect bank performance differently. Unlike earlier studies, we use the Corruption Perception Index (CPI) as an institutional variable that affects banking sector efficiency.FindingsThis research shows that the PIIGS crisis affects each bank/country differently due to their various efficiency levels. Most of the study variables — CPI, government debt to GDP ratio, inflation, bank size — significantly affect banking efficiency measures.Originality/valueThe contribution of this article to the relevant banking literature is two-fold. First, it analyses the efficiency of the PIIGS banking system from 2009 to 2018, focusing on NPLs. Second, this is the first empirical study to use probabilistic frontier analysis (order-m estimators) to evaluate PIIGS banking systems.

Research on the Optimal Energy Saving and Emission Reduction Path for Promoting High-Quality Industrial Development in Hubei Province

In December 2019, a novel coronavirus broke out in Wuhan City, Hubei Province, and, as the center of the coronavirus disease 2019 (COVID-19) epidemic, the economy and production throughout Hubei Province suffered huge temporary impacts. Based on the input–output and industrial pollution emissions data of 33 industrial industries in Hubei from 2010 to 2019, this article uses the non-parametric frontier analysis method to calculate the potential production losses and compliance costs caused by environmental regulations in Hubei’s industrial sector by year and industry. Research has found that the environmental technology efficiency of the industrial sector in Hubei is showing a trend of increasing year-on-year, but the overall efficiency level is still not high, and there is great room for improvement. The calculation results with and without environmental regulatory constraints indicate that, generally, production losses and compliance costs may be encountered in the industrial sector in Hubei, and there are significant differences by industry. The potential production losses and compliance costs in pollution-intensive industries are higher than those in clean production industries. On this basis, we propose relevant policy recommendations to improve the technological efficiency of Hubei’s industrial environment, in order to promote the high-quality development of Hubei’s industry in the post-epidemic era.

Performance evaluation of scientific research system in Chinese universities: A view of goal congruence

The performance of scientific research system is a key element in the assessment of higher education institutions (HEIs). The scientific research system mainly be constructed by two sub-systems: scientific research achievements production and the transformation of these achievements. Different from prior literature, this paper attempts to evaluate the performance of scientific research system of HEIs from a view of goal congruence. Specifically, it examines how and to what extent such two sub-systems are consistent with the goal of overall scientific research system. To this end, this study employs data envelopment analysis (DEA), a non-parametric frontier analysis approach, to present a goal congruence model which is used to measure the degree of both the overall goal congruence and the internal goal congruence. Then, the proposed model is applied to evaluate the performance of scientific research systems of 40 “first-class” universities and 62 “first-class disciplines” universities in China. Results show that only the scientific research systems of Tsinghua University and Central China Normal University achieve the goal congruence. Finally, both higher education policy recommendations and implications are discussed.

The synergistic and trade-off effects of economic-environmental-health improvement in agriculture sector: evidence from China.

Typical non-parametric frontier analysis based on material balance principle (MBP) is superior for measuring agricultural economic-environmental trade-offs when considering the flow of materials, but fails to incorporate the serious health effects caused by excessive use of pesticides. Here, using MBP-based data envelopment analysis, we measure the economic-environmental-health performances and trade-offs of agricultural production in China during 2006-2016. Evaluation results indicate that (i) the average agricultural sector would be able to produce current output with 16.3% fewer inputs; (ii) 17 million tons CO2 reduction potentials (9.6% of total emissions in 2016) could be realized through technical efficiency promotion without damaging environmental, health, and economic performances; (iii) synergistic effects on agricultural performance promotion exist in 12 regions indicating that the improvement of technical efficiency and the adjustment of input mix would simultaneously lead to 0.2-74.3% reductions on costs and pollutions; and (iv) improving cost efficiency in 18 regions and improving pollution efficiency in another 11 regions would be the most beneficial strategies for their agricultural sectors which would lead to additional reductions on total (economic, environmental, and health) costs by 10.3-22.5%.

Impact of the COVID-19 pandemic on bank efficiency in Vietnam

Banking system is an important part of the financial system of each country. The operating efficiency in the commercial banking system will provide the tools and financial products more attractive and relevant to the needs of actors in the economy. The purpose of this paper is to analyze the impact of COVID-19 on the efficiency of 26 Vietnamese commercial banks. The paper uses a quantitative method with the nonparametric frontier analysis, data envelopment analysis (DEA) approach, to measure the efficiency of Vietnamese commercial banks. The paper adopts an intermediation approach as the banks are viewed as financial intermediaries providing financial services and payment services to entities in the economy. Research findings reveal that Vietnamese commercial banks have effectively leveraged the positive impacts of the COVID-19 pandemic, since the average efficiency in 2020 improved over the pre-pandemic period in 2019 on the same models for comparison and estimation. Based on such findings, the study makes some suggestions and recommendations to help Vietnamese commercial banks increase their operational efficiency in the context of the prolonged pandemic. AcknowledgmentThe author wishes to acknowledge support from the Banking University – Ho Chi Minh City. This research was made possible thanks to all valuable support from relevant stakeholders.

ТЕОРЕТИКО-МЕТОДИЧНІ АСПЕКТИ ОЦІНКИ ЕФЕКТИВНОСТІ ДІЯЛЬНОСТІ ФАРМАЦЕВТИЧНИХ ПІДПРИЄМСТВ

The purpose of the article is to identify the most appropriate approaches to measuring the efficiency of pharmaceutical enterprises, classifying them, and developing the appropriate methodical approach. In search of appropriate approaches to measuring the efficiency of pharmaceutical enterprises, the authors considered the results of relevant studies that were published in the scientific literature in recent years. Regarding the Balanced Scorecard (BSC), it is determined that the use of the BSC system can be considered as a possible tool for measuring the efficiency of large pharmaceutical enterprises, whose activities and environment are not very variable, and whose strategies do not require frequent revision. Its use in the majority of Ukrainian pharmaceutical enterprises, which are not large companies, is inappropriate due to its inflexibility, high cost and complexity for small businesses. All identified performance indicators of pharmaceutical enterprises, depending on one or another aspect, are classified by the authors into seven groups according to the main characteristics. Analysing the existing methods of measuring efficiency in the pharmaceutical industry, the authors established that it is appropriate to develop a methodical approach to measure the efficiency of domestic pharmaceutical enterprises, which will use the most accurate and informative methods of non-parametric frontier analysis – Data Envelopment Analysis (DEA) and Free Disposal Hull (FDH), as well as the Malmquist total factor productivity index (Malmquist TFP index). The article proposes a methodical approach to measuring the efficiency of pharmaceutical enterprises, which includes six stages using non-parametric methods of frontier efficiency analysis, in particular DEA, FDH, as well as the Malmquist TFP index. The obtained results should contribute to a better understanding of the essence of measuring the efficiency of pharmaceutical enterprises, as well as to improve the process of making informed managerial decisions regarding the improvement of the efficiency of their activities.

A performance analysis framework for carbon emission quota allocation schemes in China: Perspectives from economics and energy conservation

Carbon emission quota allocation plays a critical role in carbon emission reduction in an efficient and economic manner. However, the scientific assessment of carbon quota allocation schemes and thus making a reasonable decision depending on preference still confuses relevant decision makers. This study proposes a performance analysis framework for carbon quota allocation schemes by using a nonparametric frontier analysis approach from the perspectives of economic growth and energy conservation. Then, we apply this approach to evaluate the relative economic and energy conservation performances of 15 allocation schemes by reallocating the 2015 Chinese provincial carbon emission quotas, each of which is constructed via a combination of equity, grandfathering, efficiency and ability to pay principles. The results show that the proposed allocation scheme that integrates efficiency and the ability to pay principles is the best option, realizing approximately 6.78% outputs increase and 3.01% energy conservation relative to the actual 2015 emission scenario. We also show that the best scheme is linked to total quotas; the scheme considering only the equity principle is superior to others, while the total quotas are reduced by 10%. The study provides not only a theoretical tool, but also empirical evidence for the construction of China's carbon quota allocation scheme.

Measurement of eco-efficiency and convergence: Evidence from a non-parametric frontier analysis

This study applies a nonparametric model to estimate the eco-efficiency across the US states over the period 1990–2017. To capture the environmental damage caused by anthropogenic activities, we utilize one global (CO2) and two local (SO2 and NOX) pollutants emitted by power plants to serve as inputs to the eco-efficiency analysis and states’ GDP levels as an output. The paper's primary contribution is to employ for the first time in the empirical literature a probabilistic frontier analysis (order-m estimators) to exemplify the US regional convergence/divergence patterns on eco-efficiency. The results based on the Phillips and Sul methodology (2007; 2009) indicate divergence for the whole sample. However, at least five regional convergence clubs are formulated dividing the US states into “champions” and “laggards” according to their eco-efficiency estimates. Moreover, we examine the convergence-divergence hypothesis by employing an alternative nonparametric distributional dynamics approach based on a Markov chain. Although the stochastic kernels uncover the presence of regional clustering among the US territory, they signify the existence of at least two convergence clubs. Our results survive robustness checks under the inclusion of two alternative eco-efficiency indicators, providing significant implications to government officials and policymakers.

Efficiency of groups of primary healthcare centres: a frontier analysis of primary care in Portugal

Abstract Background Primary health care (PHC) is the cornerstone of several health systems. The Portuguese PHC is organized in five mainland regions (ARS), that oversee 55 local groups of primary healthcare centres (ACES). We assessed the efficiency of all 55 ACES in mainland Portugal, as well as organizational and socioeconomic determinants of the efficiency. Methods A cross-sectional non-parametric frontier analysis was performed for 2017. The first model included two inputs (i.e. number of physicians and number of nurses) and a single output (i.e. number of PHC visits), while the second model included an additional output, i.e. Prevention Quality Indicator (PQI) overall composite (avoidable hospitalizations) adjusted for age and sex - as undesirable output. In a second stage, a (multivariate) Tobit regression was used to assess organizational and socioeconomic determinants of efficiency. Results In the first model, only 8 ACES (14.5%) were on the efficiency frontier, while 25 ACES should readjust their human resource balance. In the second model, 9 ACES (16.4%) were considered efficient. When considering quality, one ACES previously considered inefficient moved to the frontier and two ACES lost their benchmark position. The second-stage analysis indicates that groups with a higher proportion of PHC units with pay-for-performance incentives were associated with higher efficiency. Conclusions Most ACES have the potential to improve their production levels., A better management of human resources can contribute to improve overall efficiency. ACES with a higher proportion of units with pay-for-performance schemes seem to be more efficient. These findings contribute to the evaluation of policies to integrate and scale up PHC services locally, such as the recent primary care networks in the NHS UK. This work was financed by FEDER funds through the COMPETE 2020 - POCI, and by Portuguese funds through FCT in the framework of the project POCI-01-0145-FEDER-030766 “1st.IndiQare”. Key messages Most Portuguese ACES have the potential to improve their outputs given their current level of human resources. Local groups that aggregate more PHC units with pay-for-performance schemes are associated with high efficiency.

Modeling the effect of competition on US manufacturing sectors’ efficiency: an order-m frontier analysis

The study applies the probabilistic framework of nonparametric frontier estimation to model the effect of competitive conditions on sectors’ production efficiency levels. We utilize conditional order-m robust frontiers to model the dynamic effects of competition on a sample of U.S. manufacturing sectors over the period 1958–2009. Contrary to the existing studies, we apply for the first time in the Industrial Organization literature the latest advances of robust nonparametric frontier analysis to disentagle the dynamic effects alongside the effects of competition on sectors’ productive efficiency levels. The results derived from the time-dependent robust conditional estimators unveil a non-linear relationship between product market competition and productive efficiency. Our findings suggest that for higher competition levels the effect is positive up to a certain threshold after which the effect becomes negative.

Untapped regional integration potential: A global frontier analysis

ABSTRACT This paper proposes a novel approach to estimate untapped regional integration potential across geographical subregions of the world. We first construct an empirical production possibility frontier for regional integration outcomes based on two composite indices capturing enabling factors and achieved levels of regional integration outcomes across various domains. We then use non-parametric frontier analysis to rate the performance of subregions in terms of integration relative to their estimated potential. The obtained efficiency scores allow us to quantify and compare the empirical magnitudes of untapped integration potential across individual subregions. Our results suggest that, globally, subregional integration levels are currently at 60 percent of the estimated potential on average. Furthermore, there is large variation in integration outcomes, and subregions with large untapped integration potential are spread across all parts of the world. We also demonstrate how, from a policy perspective, the proposed method can be used for assessing achievements in targeting subregions with certain needs and characteristics, and guiding decisions about types of interventions that future programs aimed at fostering higher integration should prioritize in each subregion.

Does corporate social responsibility impact firms' innovation capacity? The indirect link between environmental & social governance implementation and innovation performance

Firms' choices on corporate social responsibility (CSR) and environmental, social and governance (ESG) implementation strategies can arguably have a positive impact on their value and performance. This “doing well by doing good” view remains debated in the literature. Our study contributes to this debate by investigating the impact of firms' engagement in ESG policies on their innovation capacity levels. More specifically, we apply a nonparametric frontier analysis framework to a sample of 320 Japanese firms over the period 2008–2016. Our study provides evidence of a nonlinear relationship between ESG policy adoption and firms' innovation capacity. In other words, our findings are consistent with a process of “indirect value-creation” under which firms' CSR/ESG policy adoption initially enhances their ability to pursue innovation activities and, then, eventually affects positively their value creation and financial/operational performance.

Competitive conditions and sectors’ productive efficiency: A conditional non-parametric frontier analysis

The scope of this paper is to build an appropriate nonparametric frontier framework by using time-dependent conditional efficiency estimators to investigate how competition and time affect the process of technological change and technological catch-up. Our empirical analysis utilizes a sample of 462 U.S. 6-digit manufacturing sectors over the period 1958–2009. Contrary to the existing studies, we apply the probabilistic approach of efficiency measurement to evaluate the dynamic effects alongside with the effects of competition on the sectors’ technological change and technological catch-up levels. Moreover, we estimate the sectors’ idiosyncratic efficiencies, which are an approximation of ‘Solow's residual’ representing the unexplained part of the time-dependent conditional measures. The empirical results shed new light on the topic and signify that the dynamic effect of competitive conditions has a nonlinear effect on the sectors’ estimated performance. Specifically, we unveil a “U-shaped” curve between market concentration and technological change implying that the sectors’ higher concentration levels enhance their technological change levels (e.g. innovation capacity) having however a downsize effect on their technological catch-up ability. Moreover, the relationship between the sectors’ market concentration and technological catch-up although non-linear exhibits an “N-shaped” curve with two turning points. Lastly, the above findings remain robust when we limit our analysis to the capital intensive sectors.

Economic growth and environmental degradation: a conditional nonparametric frontier analysis

This paper examines the effect of economic growth and the association of environmental degradation on economies’ technological change and technological catch-up. Using a conditional nonparametric frontier analysis to a sample of 73 economies over the time period 1980–2014, empirical evidence of the examined relationship is provided both under full and partial frontiers in the constant and variable returns to scale (VRS) models. Specifically, the newly proposed time-dependent conditional nonparametric frontier estimators have been applied. In our case the time-dependent conditional efficiency estimators allow us to model directly the effects of growth and time on economies’ estimated performance without requiring any specification of the production functional form and without assuming the separability condition between time, economic growth and the support of inputs and outputs. The overall results reveal that the efficiency results of full and partial frontiers tend to lead to the same results, except in the cases of full VRS models where energy use and carbon dioxide emissions are incorporated as an additional input and output, respectively. The results demonstrate that countries with a higher environmental efficiency are those that have signed the first agreement between nations (Kyoto Protocol) to mandate country-by-country reductions in greenhouse-gas emissions, while countries that have not signed are relatively inefficient. Ultimately, the empirical findings also suggest that the effect of economic growth is determined by economies’ development stage and geographical region.

Reconciling the Porter hypothesis with the traditional paradigm about environmental regulation: a nonparametric approach

This paper estimates the impact of pollution abatement investments on the production technology of firms by pursuing two new directions. First, we take advantage of recent econometric developments in productivity, efficiency analysis and nonparametric kernel regression by adopting a conditional nonparametric frontier analysis. Second, we focus not only on the average effect but also search for potential nonlinearities. We provide new results suggesting that pollution abatement capital affects with a bell-shaped fashion technological catch-up (inefficiency distribution) and does not affect technological change (shifts in the frontier). These results have relevant implications both for modeling and for the purposes of advice on environmentally friendly policy.

Financial stability, competitiveness and banks' innovation capacity: Evidence from the Global Financial Crisis

This paper provides nuanced evidence on the effect of competitiveness and financial stability on banks' innovation-capacity (technological-change) levels during the Global Financial Crisis (GFC) in 2007–2008. We applied contemporary developments in non-parametric frontier analysis, employing a new index, the Global Financial Centres Index, to measure the business competitiveness of 45 financial centres. Our findings indicated a nonlinear and positive relationship between financial centres' competitiveness, banks' stability and innovation-capacity levels. This suggests that banks' ability to increase stability alongside financial centres' stability in a highly competitive environment acts as a protective measure against the GFC's negative effects.