Persistent Inefficiencies Research Articles

Persistent and transient inefficiencies in the U.S. airline industry

The competitive advantage of airlines depends on their technical efficiency. Efficiency analysis models now differentiate between persistent and transient inefficiencies. Persistent inefficiencies stem from fundamental flaws in production processes or ongoing managerial shortcomings, requiring long-term strategic interventions. Transient inefficiencies, however, result from irregular setbacks that can be swiftly addressed, causing temporary efficiency dips. Focusing on the decade from 2010 to 2019, we investigated how business models, mergers, and upgauging influence these inefficiencies. Our results reveal that 21.2% of the overall technical inefficiency can be accounted for by persistent inefficiency. Despite the U.S. airline industry improving transient inefficiency during the sample period, prevailing persistent inefficiency hindered any significant rise in overall efficiency. The research shows that full-service airlines (FSA) and low-cost carriers (LCC) often exhibit higher persistent and transient efficiency than ultra-low-cost carriers (ULCC). However, there seem to be no significant differences in transient and persistent inefficiency between FSA and LCC. Additionally, the results suggest that the upgauging and higher ramp-to-ramp hours may lead to higher transient efficiency. Finally, we could not find any influence of mergers and stage length on transient inefficiency.

Demand Response Strategies among Power Distribution Companies for Efficient Power System Management in Nigeria

This study investigates the demand response strategies employed by power distribution companies (DisCos) in Nigeria and their implications for efficient power system management. As the Nigerian power sector grapples with persistent inefficiencies and reliability issues, implementing effective demand response mechanisms emerges as a crucial strategy for improving overall performance. The research employs a quantitative methodology, utilizing a structured questionnaire administered to a sample of 316 stakeholders across various DisCos in Nigeria. Findings reveal a significant relationship between the implementation of demand response strategies and the efficiency of the power system (p < 0.05), indicating that such strategies can enhance operational efficiency. Moreover, the adoption of advanced metering infrastructure is shown to significantly improve the effectiveness of these strategies, underscoring the importance of technological integration in power distribution. However, the study also identifies key challenges faced by DisCos, such as regulatory hurdles and inadequate infrastructure, which hinder the adoption of demand response initiatives.

Accounting for technology heterogeneity in the measurement of persistent and transient inefficiency

This article tackles the problem of ignoring firm technology heterogeneity when measuring persistent and transient inefficiencies, which can lead to distorted estimates. Given that firms’ technologies exert a greater influence on long-run rather than short-run management, accounting for technology heterogeneity should prevent distortions in persistent inefficiencies and, to a lesser extent, in transient inefficiencies, which has been overlooked in the literature. Employing data from Dutch dairy farms spanning the years 2009 to 2016, I estimate random and fixed coefficients generalized true random effects models in a Bayesian framework, subsequently comparing the derived inefficiency scores. The findings indicate that average persistent inefficiency and its dispersion are inflated when technology heterogeneity is ignored, whilst transient inefficiency remains virtually unaffected. This finding is crucial to prevent firms and policy-makers from receiving misleading information about long-run performance metrics, whilst highlighting the need for future studies to account for technology heterogeneity when analyzing firms’ decisions.

Exploring the Potential Applications of Blockchain Technology in Accounting Practice: A Systematic Literature Review

This study aims to examine the potential of blockchain technology in revolutionizing conventional accounting processes and mitigating persistent inefficiencies and problems. This study introduces the potential of blockchain technology to revolutionize conventional accounting processes and address persistent inefficiencies and challenges. By employing a rigorous search methodology, establishing specific criteria for selection, and conducting meticulous data analysis, this paper presents significant discoveries pertaining to the implementation of blockchain technology in the field of accounting. The results suggest an increasing fascination with the potential of blockchain technology to bring about a transformative impact on the accounting sector. The use of blockchain technology in the field of accounting encompasses several areas such as the recording of transactions, automation of accounting operations, and enhancement of auditing procedures. Application of this technology contributes to the improvement of transparency, integrity, and efficiency in financial reporting. However, for widespread adoption to occur, it is imperative to overcome many difficulties like standardisation, interoperability, scalability, legal compliance, and data protection. The study emphasizes the importance of investigating the possibilities of blockchain technology in the field of accounting to address conventional accounting obstacles. The findings of this study may be utilized by researchers to discover potential areas for further research. Additionally, practitioners can acquire valuable insights into the advantages and difficulties associated with implementing these findings.

The role of family life‐cycle events on persistent and transient inefficiencies in less favoured areas

AbstractFamily farms dominate less favoured areas (LFAs) within Europe, and family life‐cycle conditions, such as succession and retirement, affects how these farms adapt to changing circumstances. Past studies of on‐farm technical efficiency have not directly addressed these conditions, but they may explain why some farms are more efficient than others, especially as the farm family model dominates most farming systems. Motivated by the UK's withdrawal from the EU and the debate around establishing replacement support policies, we apply a multi‐step model to measure both transient and persistent inefficiencies using a panel of LFA cattle and sheep farms in Scotland over the period 2003–2020. We find a greater prevalence of persistent compared to transient inefficiency, which suggests that structural problems still exist. Farms with planned succession are found to have higher persistent efficiencies, whereas farmers nearing retirement have lower levels. Other factors, such as dependence on subsidy, off‐farm activity and classification as severely disadvantaged tend to compound these lower efficiencies. We argue that life‐cycle conditions should not be ignored in studies of farm technical efficiency. Within the scope of framing a new agricultural policy for UK administrations, these results inform the debate on support for LFAs, as well as the promotion of support towards generational renewal to ease transition across farm family life‐cycle events.

Efficient and Sustainable Bioenergy Production in Swedish Forests – A Network DEA Approach

Forest fuel defined as branches and tops (GROT) of harvested trees represents a large share of forest biomass and is increasingly viewed as a potential energy source. This study assesses the economic potentials of forest bioenergy production in Swedish forests, using a network data envelopment analysis (DEA) model to estimate the technology for biofuel and other forest products. We consider that forests are managed to use multiple inputs to produce multiple outputs. Outputs include sawtimber, pulpwood, fuelwood, and bioenergy in terms of GROT. Our model also considers environmental concerns over biodiversity and CO2 emissions from burning biomass. We apply the network DEA model to measure the revenue efficiency of forest production of Swedish forests using a panel consisting of 20 counties and covering the years from 2008 to 2014. Our results show that there exist persistent economic inefficiencies of forest production in some counties, reducing the overall efficiency of Sweden’s forest and wood products industry. In addition, we also estimate the potential increase in bioenergy, deadwood and CO2 emissions reduction from combustion of bioenergy and by-products from sawtimber and pulpwood.

Transient and persistent energy efficiency in the US residential sector: evidence from household-level data

In this paper, we measure the energy efficiency implicit in residential energy consumption using a panel dataset comprised of 40,246 observations from US households observed over 1997–2009. We fit a stochastic frontier model of the minimum input of energy needed to meet the level of energy services demanded by the household. This benchmarking exercise produces a transient and a persistent efficiency index for each household and each time period. We estimate that the US residential sector could save approximately 10% of its total energy consumption if it reduced persistent inefficiencies and 17% if it were possible to eliminate transient inefficiencies. These figures are in line with recent economy-wide assessments for the USA. Our results suggest that savings in energy use and associated emissions of greenhouse gases may benefit from both policy measures that attain short-run behavioral changes (e.g., nudges, social norms, display of real-time information about usage, and real-time pricing) as well measures aimed at the long run, such as energy-efficiency regulations, incentives on the purchase of high-efficiency equipment, and incentives towards a change of habits in the use of the equipment.

Matching Inefficiencies, Labor Market Flexibility and Local Democracy in Spain

By applying a stochastic production frontier approach to the matching process of unemployed and vacancies, this paper provides novel detailed insights into the process of job creation in Spain over the 2006-2012 period. The methodology produces estimates of the relative importance of demand and supply factors for the creation of new jobs, and of regional inefficiencies of job creation. This paper represents a first attempt to test whether a more flexible labour market as designed by the 2010 reform affects the matching efficiencies. We also investigate the possible link existing between local democracy (as factor influencing labour market governance) and inefficiency, handling endogeneity. Results suggest that the matching process was inefficient before the 2008 crisis. Efficiency increased during recession/rebound probably as consequence of policies aims to strengthen the economic system. In particular, the 2010 reform appears to have improved on average the matching efficiencies. Local democracy positively influences efficiency (and the effect is substantially higher when endogeneity in the inefficiency is handled). Despite these considerations, regional disparities in matching efficiencies persisted over time. Therefore, these results support the recommendation of further reducing matching inefficiencies before implementing policies aimed to increase the stock of vacancies at least in regions characterized by persistent inefficiencies.

Transient and Persistent Energy Efficiency in the US Residential Sector: Evidence from Household-level Data

In this paper, we measure the energy efficiency in residential energy consumption using a panel dataset comprised of 40,246 observations from US households observed over 1997-2009. We fit a stochastic frontier model of the minimum input of energy needed to meet the level of energy services demanded by the household. This benchmarking exercise produces a transient and a persistent efficiency index for each household and each time period. We estimate that the US residential sector could save approximately 10% of its total energy consumption if it reduced persistent inefficiencies and 17% if it was able to eliminate transient inefficiencies. These figures are in line with the assessment by McKinsey (2008, 2009, 2013) and greater than those indicated by the Electric Power Research Institute (2009). They suggest that savings in energy use and associated emissions of greenhouse gases (and other pollutants) may benefit from both policy measures that attain short-run behavioral changes (e.g., nudges, social norms, display of real-time information about usage, and real-time pricing) as well measures aimed at the long run, such as energy-efficiency regulations, incentives on the purchase of high-efficiency equipment and incentives towards a change of habits in the use of the equipment.

A Practical Guide to Quantitative Portfolio Trading

We discuss risk, preference and valuation in classical economics, which led academics to develop a theory of market prices, resulting in the general equilibrium theories. However, in practice, the decision process does not follow that theory since the qualitative aspect coming from human decision making process is missing. Further, a large number of studies in empirical finance showed that financial assets exhibit trends or cycles, resulting in persistent inefficiencies in the market, that can be exploited. The uneven assimilation of information emphasised the multifractal nature of the capital markets, recognising complexity. New theories to explain financial markets developed, among which is a multitude of interacting agents forming a complex system characterised by a high level of uncertainty. Recently, with the increased availability of data, econophysics emerged as a mix of physical sciences and economics to get the best of both world, in view of analysing more deeply assets' predictability. For instance, data mining and machine learning methodologies provide a range of general techniques for classification, prediction, and optimisation of structured and unstructured data. Using these techniques, one can describe financial markets through degrees of freedom which may be both qualitative and quantitative in nature. In this book we detail how the growing use of quantitative methods changed finance and investment theory. The most significant benefit being the power of automation, enforcing a systematic investment approach and a structured and unified framework. We present in a chronological order the necessary steps to identify trading signals, build quantitative strategies, assess expected returns, measure and score strategies, and allocate portfolios.

The Measurer’s Dilemma

Over the past decades, (mostly) private actors have been providing the public good of cross-national political data in a decentralized, uncoordinated, and unregulated fashion. They have been successful in generating an incessant supply of data. However, the success of current practices of data production has been masking severe structural limitations: the systematic undersupply of data and the systematic inefficiency of data generation. Both problems derive from disciplinary coordination failures (“measurer’s dilemmas”). On one hand, private data producers have been unable to coordinate the cross-national collection of two broad categories of data: political data produced by national governments (e.g., election results) and factual data that are not observable from the outside of national political systems but require access to domestic sources of information (e.g., protest events). On the other hand, private data producers have been unable to construct regulatory frameworks that would reduce persistent inefficiencies in data collection: data privatization, data opacity, and data incompatibility. To resolve these structural problems, the scholarly community will need to mobilize established collective actors, above all, their professional associations.

The Dynamics of Labor Productivity in Swiss Universities

This paper analyzes the labor productivity of Swiss university departments between 1995 and 2007. Using a parametric input distance function we estimate and decompose the Malmquist productivity indexes in line with Fuentes et al. (2001) and Atkinson et al. (2003). By contrast to those studies, this paper proposes a panel data specification to account for unobserved heterogeneity across production units. The adopted model is a mixed-effects model with department fixed effects as well as random coefficients for time variables. We also use an autoregressive stochastic term to model inefficiency shocks while allowing for gradual improvement of persistent inefficiencies. The results indicate a negative trend in overall productivity measured by Malmquist index, particularly after 2002, with an average productivity decline of about one percent per year. A major part of this productivity decline coincides with the recent developments in Switzerland's higher education system following the adoption of the Bologna agreement. However, the results do not provide any evidence of statistically significant relationship between productivity and reforms. Our decomposition analysis suggests that the observed productivity decline could be contributed to technical regress but also to a rising inefficiency with a relatively high level of persistence. The results also point to various patterns across different fields. In particular, economics and business departments and law schools show the lowest performance, whereas science departments stand out as an exception with productivity improvement.

East Asian Visions: Perspectives on Economic Development

Asian Visions: Perspectives on Economic Development. Edited by Indermit Gill et al. Washington, D.C. and Singapore: World Bank and Institute of Policy Studies, 2007. Pp. 358. The volume contains eighteen policy studies authored by twenty senior policy-makers, statespersons and scholars who represent eight Asian countries. The studies focus on an array of themes and questions related to them. First, what factors explain Asia's growth and development, and will all of countries that have experienced success continue to do so as powerful impact of China either benefits them or crowds some of them out of markets and leaves them behind? Second, will forces of integration build stability and efficiencies or will some Asian economies be plagued with persistent inefficiencies and become both economically and politically vulnerable? Third, can Asian countries avoid domestic disintegration given growing public concerns about increasing inequities, persistent poverty, environmental pollution and degradation, and official and private sector corruption and cronyism? Fourth, will Asia find a new generation of leaders and willing followers who can set aside national myopia and internal differences in favour of more effective and widely supported view of regional cooperation and integration? The authors discuss a generally shared vision that answers to above will be yes but only following a great deal of hard work that eventually will lead to sound economic structures and practices throughout Asia, and they will be based upon effective regional integration and economic openness, able and corruption-free leaders and influence of China. With this in mind, opening chapter makes two telling points. The first is that growth of production sharing networks (featuring horizontal and vertical linkages among firms) has meant that East Asia's share of trade has increased from 10 per in 1970's to more than 25 per today. Intraregional trade ... has increased from 35 per to 55 per cent (p. 11). Even with rise of China, [w]ith such a wide range of factors at play, so no single country within Asia can dominate production chain, but with much of activity centered in China as assembly plant of world (p. 11). The second telling point is that finding effective change agents who will continue to lead this process both internally and externally is crucial. Effective leadership and management requires making the important transition from paternalistic top-down governance structure to a pluralistic and open market economy structure since no small elite can no longer manage large complex market economies (featuring production sharing networks) (p. 19). Leadership in some form or other is a central feature of book's many chapters because, according to some of contributors, leaders must also find ways to avoid domestic disintegration by dealing effectively within civil societies. Such societies flourish when market management is efficient and when public officials operate in absence of corruption, when they practise responsive decision-making, and when they do not tolerate polluted cities, impoverished rural and urban areas and excessive inequities. Ambassador Tommy Koh's essay makes point that corruption poses a massive challenge because it distorts economic decision-making. It leads to injustice. Corruption undermines of public institutions. Asian leaders and thinkers should be united in condemning and combating corruption (and) ... in increasing transparency, accountability and integrity (p. 143). Haruhiko Kuroda echoes Koh's points by declaring that avoidance of corruption is essential especially since primary obligation of leaders is to eliminate, or at least substantially reduce, poverty which remains single most urgent challenge for many Asian developing countries. …

APPLICATION OF PANEL DATA MODELS IN BENCHMARKING ANALYSIS OF THE ELECTRICITY DISTRIBUTION SECTOR*

**: This paper explores the application of several panel data models in measuring productive efficiency of the electricity distribution sector. Stochastic Frontier Analysis has been used to estimate the cost-efficiency of 59 distribution utilities operating over a nine-year period in Switzerland. The estimated coefficients and inefficiency scores are compared across three different panel data models. The results indicate that individual efficiency estimates are sensitive to the econometric specification of unobserved firm-specific heterogeneity. This paper shows that alternative panel models such as the ‘true’ random effects model proposed by Greene (2005) could be used to explore the possible impacts of unobserved firm-specific factors on efficiency estimates. When these factors are specified as a separate stochastic term, the efficiency estimates are substantially higher suggesting that conventional models could confound efficiency differences with other unobserved variations among companies. On the other hand, refined specification of unobserved heterogeneity might lead to an underestimation of inefficiencies by mistaking potential persistent inefficiencies as external factors. Given that specification of inefficiency and heterogeneity relies on non-testable assumptions, there is no conclusive evidence in favour of one or the other specification. However, this paper argues that alternative panel data models along with conventional estimators can be used to obtain approximate lower and upper bounds for companies' efficiency scores.

Prisoner’s Dilemmas, Cooperative Norms, and Codes of Business Ethics

Prisoner's dilemmas can lead rational people to interact in ways that lead to persistent inefficiencies. These dilemmas create a problem for institutional designers to solve: devise institutions that realign individual incentives to achieve collectively rational outcomes. I will argue that we do not always want to eliminate misalignments between individual incentives and efficient outcomes. Sometimes we want to preserve prisoner's dilemmas, even when we know that they systematically will lead to inefficiencies. No doubt, prisoner's dilemmas can create problems, but they also create opportunities to practice the cooperative norms that make market institutions possible in the first place. An ethical market culture, I argue, benefits from the presence of prisoner's dilemmas. I first consider standard approaches for solving prisoner's dilemmas. I then argue for the value of prisoner's dilemmas. Finally, I show the significance of this argument for advocating codes of business ethics.

Principles of network development and evolution: an experimental study

This paper reports on an experimental investigation of the evolution of networks and the individual decision-making processes that guide it. Inasmuch as there is no history of experimental work on network formation, part of the paper is devoted to the formulation of problems that can be examined experimentally. The results are that networks, composed of decentralized decision makers, are capable of overcoming complex coordination and learning problems and converge to stationary configurations. While stationarity is frequently observed, such an achievement is not guaranteed, and when it does not occur, significant and persistent inefficiencies can result. The models of equilibration based on the principle of Nash equilibrium are more reliable than models based on the alternative principles of efficiency seeking or focalness of the network configuration. However, individual decision making within networks is not in accordance with the simple decision rule of Nash best response. Instead, we observe complicated strategies that appear to trade short-term profits in order to signal to and teach other agents the strategies required for long-term profit maximization.

Rational Choice and Dysfunctional Institutions

As stated elsewhere in this issue, we cannot claim to explain an institution's origin just by the functions it serves. In part thismay be because of the cognitive limitations of those actors who are instrumental in institutional formation and institutional change. But even more clearly, it is the case that rational instrumental choice does not imply functional institutions. Just as rational choice in a prisoner's dilemma may result in inefficient policies, rational choice by actors with conflicting preferencesfor institutions may result in institutions that are suboptimal. Examples of rational choice explanations of dysfunctional institutions are provided in the area of bureaucracy, regulation, healthcare, and budgeting. I argue that the paradoxes and impossibility results of rational choice theory offer the best insights currently available into the persistent inefficiencies of the world ofpolitics.

Dividend information, stock returns and market efficiency-II

This is the second part of a study about common stock returns around split events (Part I) and dividend change events (Part II) as revealed in the 1947–1967 experience of the New York Stock Exchange (NYSE). Part I is the subject of a companion article in this issue of the Journal. The evidence about splitting stocks was found in many ways consistent with the efficient capital markets hypothesis, slightly method-dependent and time-dependent to an appreciable degree. By contrast, the results from Part II presented below point to persistent inefficiencies in the market. In almost any way one looks at the stocks' residuals in the months following the selected dividend changes, decreases in particular, they turn out abnormally large. The interpretation is advanced that, on the average, the NYSE under-reacts when dividend changes are announced. The possibility is also recognized that unexplored basic problems with the residual approach could account for the abnormal results.