Output Distance Function Research Articles

Assessing the productivity effects of agricultural extension in a pluralistic system: an analysis of Brazilian family farming in 2017

ABSTRACT Purpose: This paper analyzes the impact of agricultural extension on the production of Brazilian family farmers, breaking down differences among extension providers. Design/Methodology/Approach: An Output Distance Function was estimated for Brazilian family farming using 5,463 municipality-level observations from the 2017 Brazilian Agricultural Census. The impact of extension on efficiency and technology was assessed. Findings: Rural extension services from public institutions, cooperatives, and private companies increased technical efficiency. Independent consultant services increased the adoption of more productive technologies and technical efficiency. However, public technical assistance increased productivity by 47.76%, technicians hired directly by farmers increased productivity by 31.25%, and technical assistance from cooperatives increased productivity by 31%. Practical implications: These findings could aid in the Brazilian Extension System’s goal of promoting productivity gains. The National Policy of Rural Extension has the ability to decentralize the role of the government and structure incentives to increase access to other providers based on these findings. Theoretical implications: This article expands the econometric estimation of Output Distance Functions to break down the impacts of extension on both efficiency and technology adoption. Originality/Value: Using readily available municipality-level data, this paper contributes to the understanding of the effectiveness of the different providers of rural extension for Brazilian family farmers and provides data regarding the impact on yield.

Production efficiency of internet-only banks and conventional banks: Evidence from China and Japan

In recent years, Internet-only banks have begun participating in many countries' financial markets; however, their impact on these markets requires clarification. This study focused on China and Japan and covered the period from 1995 to 2019. We utilized the stochastic frontier approach to estimate the output distance function with a view to comparing production efficiency before and after the entry of Internet-only banks into the financial markets of both countries. The results revealed that China's Internet-only banks are more efficient than conventional banks, while the opposite is true in Japan. Furthermore, although Japan's Internet-only banks outperformed China's, Japan's conventional banks were less efficient than were those in China; this finding suggests that Japan's Internet-only banks adopt more advanced production technologies. Finally, the results of stochastic meta-frontier regression supported the notion that national banks in both China and Japan outperformed private banks between 2015 and 2019.

Evaluation of marginal abatement cost and potential reduction in China's industrial carbon emissions: A quadratic directional output distance function approach

As a relevant indicator for quantifying the value of carbon emissions, the marginal abatement cost (MAC) of carbon emissions has received increasing attention from academics and policymakers. This study uses a quadratic directional output distance function to analyse the technical efficiency, potential emission reduction and shadow prices of China's industrial carbon emissions. The results show that the technical efficiency of China's industry gradually decreased during the sample period. From the perspective of regions with different carbon intensity and industrial output, regions with lower carbon intensity and higher industrial output gradually closed to the optimal frontier for the technology use level and had relatively high technical efficiency. Rising technical inefficiency and carbon emissions led to a potential emission reduction that also exhibits an upwards trend. In addition, the MAC of industrial carbon emissions exhibits a U-shaped trajectory, with 2011 as the turning point. Generally, in recent years, regions with lower carbon intensity and those with higher industrial output have a relatively high MAC for industrial carbon emissions. The empirical findings reveal that a carbon emission reduction policy should be formulated and targeted to each province, and the principle of ‘easy before difficult’ can be followed to promote emission reduction.

Technical Efficiency and Returns to Scale in Vietnam’s Agriculture: Stochastic Output Distance Function Approach

Technical Efficiency and Returns to Scale in Vietnam’s Agriculture: Stochastic Output Distance Function Approach

Heterogeneity and time-varying efficiency in the Ecuadorian banking sector. An output distance stochastic frontier approach

This paper estimates the efficiency of Ecuadorian commercial banks from 2007 to 2017, considering multiple inputs and outputs, several factors explaining inefficiency, technological unobserved heterogeneity, and time-varying efficiency. To do this, we used an output distance function stochastic frontier model in a Bayesian framework and considered the profitability approach. In general, the results show evidence of unobserved cross-bank heterogeneity and time-varying inefficiencies, the latter of which presented scores which were high and stable over time. One factor that significantly explains inefficiency is foreign ownership, however internal factors such operating profitability and Central Bank policy reserve requirements did not. Finally, estimated returns to scale show bimodality indicating the existence of two bank groups associated with decreasing and constant returns to scale.

CO2 emissions abatement costs and drivers for Indian thermal power industry

Indian power industry contributes nearly half of its overall CO2 emissions. In this study, we answer three related questions. First, what is the abatement cost of CO2 emissions for the Indian thermal power industry under three different policy scenarios - business as usual, emissions reduction only, and simultaneous emissions reduction and energy efficiency enhancement. Second, what are the determinants of these abatement costs of CO2 emissions. Third, which abatement policy scenario is more beneficial. For this, we employ a plant level dataset covering 93% of installed capacity and use a parametric quadratic directional output distance function to estimate marginal abatement costs by applying deterministic linear programming methods. Our findings are: First, the abatement costs range between US$ 46.43–71.11 per ton CO2, depending on the policy scenario chosen. Second, plant age, location, size, ownership, and CO2 intensity are all significant drivers of abatement costs. Third, while greater emissions reductions are possible under the emissions reduction only scenario vis-à-vis simultaneous emissions reduction and energy efficiency enhancement scenario, both scenarios are compatible with meeting the Paris agreement goals. This paper helps decision makers to allocate CO2 abatement targets to plants in line with their abatement costs and potential.

Assessing performance of directional output distance function: Simulation-based Analysis

Assessing performance of directional output distance function: Simulation-based Analysis

Carbon abatement in the European chemical industry: assessing the feasibility of abatement technologies by estimating firm-level marginal abatement costs

As many other industries, the chemical industry has to strongly reduce its' carbon emissions, for which various abatement technologies exist. We study the economic feasibility of these abatement technologies by estimating the Marginal Abatement Cost (MAC) of CO2 emissions for 24 firms in the European chemical sector over the period 2015–2020. We estimate the firm-level MAC by using a quadratic directional output distance function (DDF) model. We find a median MAC of 429 €/t CO2, which is significantly above current carbon prices, indicating that most firms in this industry prefer to use carbon allowances instead of reducing their own emissions. We conclude that carbon abatement in the chemical industry is only likely when the carbon price is significantly higher or when financial support is provided for certain abatement technologies, such as renewable hydrogen and bio-based ammonia.

Estimating the CO2 marginal abatement cost and implications for climate policies in China’s industrial sector: A firm-level analysis

ABSTRACT This paper presents an in-depth analysis of the Marginal Abatement Cost Curve (MACC) for CO2 of China’s industrial sector. Leveraging comprehensive firm-level panel data spanning the period 2011–2015, we employ a parameterized directional output distance function to estimate the shadow price of CO2. By doing so, we derive the marginal abatement cost for individual firms across different years, which provides crucial insights into two fundamental aspects: first, the variation in shadow prices as indicators of the economic efficiency of existing climate policies; and second, the carbon price levels necessary to achieve CO2 mitigation targets in the future. Furthermore, we conduct scenario simulations to assess the potential industrial output loss resulting from forthcoming carbon policies, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM). Our findings underscore the necessity for a considerably higher tax rate to stimulate pollution reduction in order to meet the desired emission targets.

Interplay between China’s grain self-sufficiency policy shifts and interregional, intertemporal productivity differences

In 2013, the Communist Party of China decided to partially relax its self-sufficiency targets for grain, historically first recognizing moderate imports as a policy option for ensuring food security in the country. This study empirically examines the interplay between the policy shifts and the interregional, intertemporal productivity differences in Chinese agriculture. It employs a meta-frontier stochastic output distance function approach. Our empirical result shows that input augmentation was the main contributor to the agricultural output growth during 1984–2000, whereas total factor productivity is the main driver of the growth during 2001–2020. This lends strong support to an argument in the literature that Chinese crop production has recently transformed from a resource-input-driven activity to one driven by science and technology. Our study also demonstrates that the western region, which far lagged behind others in the past in terms of agricultural technology, has made remarkable progress during 2001–2020, which confirms the cross-regional productivity convergence over time. It is likely that farmers in this region were better able to gain a higher economic return from crop diversification into horticulture, for which they might have been all the more motivated to improve their productivity.

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.

Marginal abatement costs for GHG emissions in Canada: a shadow cost approach

This study approximates the marginal abatement costs (MACs) of reducing GHG emissions in Canada using the shadow cost approach. Utilizing industry level data, we are the first to offer Canadian estimates based on a Hyperbolic Output Distance Function (HODF) and the stochastic frontier estimation. Accounting for GHG emissions caused by energy consumption, we obtain an average shadow MAC of $130/t across 30 industries. In the GHG-intensive industries such as the electric utilities and non-conventional oil extraction, MACs are lower than the CO2 levy of $50/t imposed by the federal government. Since these low-MACs sectors account for about 98 per cent of total GHG emissions and 94 per cent of total energy use in industries studied, the envisaged $50/t carbon levy could notionally result in a significant GHG abatement in Canada.Graphical abstractFig. aEstimated Marginal Abatement Costs by Sector

Assessing the costs of GHG emissions of multi-product agricultural systems in Vietnam

Besides a vital sector of the economy, agriculture is a primary source of greenhouse gas (GHG) emissions. The present paper investigates the impact of carbon tax policy on Vietnamese agriculture by focusing on multi-product systems such as rice, livestock, and aquaculture, traditionally called the Vuon (Garden)–Ao (Pond)–Chuong (livestock pen) system (VAC). In it, farmers use garden, pond, and pen by-products as fertilizer and feed. We use shadow prices and Morishima substitution elasticities as greenhouse gas emissions indicators, estimated with directional output distance function. Farmers in the Mekong Delta region are found to be technologically less efficient than in other regions of Vietnam, though the shadow prices of GHG emissions are lower there too. This indicates that farmers in the Mekong Delta, generally concentrating either on livestock or aquaculture, have greater potential for reducing GHG emissions by way of improvements in technical efficiency than do those in other regions. However, Morishima elasticity estimates show that policy impacts diminish more quickly in the Mekong than elswhere. We suggest the Vietnamese government encourage Mekong Delta farmers to employ technologically more efficient methods or shift to more balanced farming to reduce the shadow price of GHG emissions, encouraging more efficient emissions reduction.

Distance function approaches for efficiency analysis of organic production units: a critical review

Objectives: This review aims to make a comprehensive synthesis of distance function methods for the efficiency analysis of organic production units. Methodology and Results: The study reviewed and summarized the different approaches of distance functions applied in organic farming systems to assess performance. Original articles covering ten years, from 2010 to 2020 were identified through keyword searching using web search engines. After careful reading of the abstracts, 20 papers were finally retained. The selected papers were categorized based on study purpose and findings. Results showed a gap between the development of distance function methods and their usage in organic farming efficiency analysis. Four distance function methods were identified, and the most used in organic farming efficiency analysis were output distance function (40%) and directional output distance function (25%). Conclusion and application of findings: Results indicate that distance functions are powerful tools in modelling multi-input and multi-output production technology for assessing organic farming efficiency. Future research should focus on these methods to deepen their understanding and applications. Keywords: Distance function, efficiency analysis, literature review, organic farming

Comparative countries’ tourism technical efficiency assessment: A stochastic output distance function approach

This study aims at analysing the technical efficiency of the tourism industry worldwide. Using a sample of 111 countries worldwide from 2008 to 2016, we estimated the tourism industry technical efficiency score to measure of the industry performance from a translog output distance function modelling. Our results showed that high-income countries are more efficient because of higher qualified labour, and higher productivity of natural and cultural resources. Besides, our results support that African and Asian countries are less efficient than those from Europe and America. For international comparison purposes, our findings suggested that the level of income and the location of destinations should be incorporated as determinants and inputs of the tourism production function to the technical efficiency. In the political view, policymakers are encouraged to be aware of the income level of their citizens to improve the performance of their tourism sector.

Environmental efficiency of wine grape production in Mendoza, Argentina

The natural characteristics are a valuable asset for the production of wine grapes, but the availability of quality water and the composition of the soil are decisive in semi-arid areas. The province of Mendoza is a prestigious region for the production of wine that is going through a period of water scarcity, which implies a greater use of groundwater that could compromise the availability of resources and trigger salinity levels. This paper evaluates the environmental performance of winegrowers in the face of a productive threat such as the saline content in irrigation water. We estimate environmental efficiency based on a directional output distance function using the salinity hazard of irrigation as an undesirable output. The average environmental performance is 0.88 and it can be reduced by participating in producer groups, receiving technical assistance, increasing the density of the vineyard, and receiving an energy subsidy for irrigation. In addition, the shadow price of the salinity hazard reveals that higher salinity content in irrigation water and soil characteristics cause excessive irrigation at the expense of environmental and economic performance. Furthermore, the pre-existing market price relationship, water balance and district characteristics can deflate shadow prices, but only vineyards with joint water sources can benefit from this.

The relationship between port-level maritime connectivity and efficiency

This paper examines the empirical relationship between maritime connectivity and port efficiency. To do so, a stochastic output distance function is employed which permits the effect of connectivity on port technical efficiency to be estimated for a sample of Spanish ports. Previous studies analysing the relationship between efficiency and connectivity have used country-level connectivity indices. In the present study, port-level connectivity indices are used for the first time for this type of analysis. A novel panel dataset of 16 Spanish ports observed over the period 2006–2016 is constructed by crossing port-level connectivity information from UNCTAD's Port Liner Shipping Connectivity Index (PLSCI) with port-level production data from Spanish port authorities. The results from our estimation show a positive relationship between connectivity and port efficiency. It is found that relatively modest improvements in observed connectivity are associated with large differences in expected output.

The contribution of resident physicians to hospital productivity

Resident physicians play a double role in hospital activity. They participate in medical practices and thus, on the one hand, they should be considered as an input. Also, they are medical staff in training and, on the other hand, must be considered as an output. The net effect on hospital activities should therefore be empirically determined. Additionally, when considering their role as active physicians, a natural hypothesis is that resident physicians are not more productive than senior ones. This is a property that standard logarithmic production functions (including Cobb–Douglas and Translog functional forms) cannot verify for the whole technology set. Our main contribution is the development of a Translog modification, which implies the definition of the input “doctors” as a weighted sum of senior and resident physicians, where the weights are estimated from the empirical application. This modification of the standard Translog is able, under suitable parameter restrictions, to verify our main hypothesis across the whole technology set while determining if the net effect of resident physicians in hospitals’ production should be associated to an output or to an input. We estimate the resulting output distance function frontier with a sample of Spanish hospitals. Our findings show that the overall contribution of resident physicians to hospitals’ production allows considering them as an input in most cases. In particular, their average productivity is around 37% of that corresponding to senior physicians.

Improving electricity supply reliability in China: Cost and incentive regulation

Electricity regulators pay attention to electricity supply reliability in many countries, considering that power interruption can cause damage and destruction as modern societies increasingly rely on electricity. Since 2020, China's regulators have designed incentive schemes to encourage power grid firms to improve electricity supply reliability in some regions. An effective incentive scheme requires that regulators identify the cost of reliability improvement and match it to the incentive scheme. Using provincial panel data for 2012–2018, this paper employs the directional output distance function approach to estimate the shadow price of power interruptions in China's grid system—that is, the marginal cost of electricity supply reliability improvements. Results indicate that the shadow price of 1 min of interruption per customer ranged from 59.66 to 74.65 RMB in 2012–2018. This estimation also shows that the shadow price of 1 min of interruption varies substantially among provincial grid utilities. The marginal cost of improving electricity supply reliability in China's grid system is lower than in developed countries. Since the incentives far from cover the cost of improvement, the schemes implemented in some Chinese regions cannot provide incentives for quality improvements.

Developing effective CO2 and SO2 mitigation strategy based on marginal abatement costs of coal-fired power plants in China

This study proposes a novel analysis framework to investigate the CO2 and SO2 emission efficiency, emission reduction potential, and marginal abatement cost (MAC) of 316 coal-fired power plants in China. The comprehensive analysis framework is based on the combined approach of utilizing the directional output distance function (DODF) and parametric linear programming (PLP). The average emission efficiencies of CO2 and SO2 were 0.48 and 0.61, respectively, which indicates that China’s coal-fired power plants have a large potential to reduce CO2 and SO2 emissions, on average by 52% and 39%, respectively. In 2010, the average CO2 and SO2 emissions reduction potential for the 316 investigated power plants were 1,517 kt and 3,773 t, respectively. The average MAC prices for CO2 and SO2 were estimated to be 598 yuan/tonne and 22,401 yuan/tonne, respectively, indicating that the reduction of such emissions is very expensive. Furthermore, I formulated an optimization problem for maximizing CO2 and SO2 emission reductions under the governmental budget constraint. Solving this optimization problem yielded the total cost for the maximum reductions of CO2 and SO2 emissions, the maximum possible reductions for CO2 and SO2 emissions for each allocated budget scale, and the optimal budget allocation for each power plant at a given budget scale. I finally suggest effective mitigation strategies for CO2 and SO2 emissions generated from China’s coal-fired power plants.