Stochastic Distance Function Research Articles

A comparative analysis of multi-output frontier models

Recently, there have been more debates on the methods of measuring efficiency. The main objective of this paper is to make a sensitivity analysis for different frontier models and compare the results obtained from the different methods of estimating multi-output frontier for a specific application. The methods include stochastic distance function frontier, stochastic ray frontier, and data envelopment analysis. The stochastic frontier regressions with and without the inefficiency effects model are also compared and tested. The results indicate that there are significant correlations between the results obtained from the alternative estimation methods.

The Effects of Governance Changes on Bank Efficiency in China: A Stochastic Distance Function Approach

China has accelerated and deepened bank reform since it joined the WTO in 2001. Employing a stochastic distance function, this paper investigates the technical efficiency of banks and examines the static, selection and dynamic effects of governance changes on bank efficiency in China for the period 1995-2005. Our results show that bank efficiency has been improved and state-owned banks still perform poorly except for a noticeable improvement from 2003. Strong selection effects are found from both the foreign acquisition and going-public reform strategies. Foreign acquisition may benefit bank efficiency in the long run, but going-public appears to have just some short run effects. One obvious policy implication is that foreign competition is beneficial to China's on-going bank reform, and going-public is just a means to allow effective foreign competition.

The internal market and hospital efficiency: a stochastic distance function approach

The UK internal market was one of the first European attempts to introduce a competitive mechanism in the provision of hospital services. The assumption was that competition would have led hospitals to increase efficiency in the use of their resources. The aim of this paper is to analyse the effectiveness of this kind of reform by measuring the changes in technical efficiency of a panel of 52 acute Scottish hospitals observed from 1991/92 to 1996/97. The time period covers the whole duration of the internal market and the sample contains a different mix of both trusts and non-trusts, where the former embed the proper working of the reform. The selected model is a stochastic output distance function that includes an interaction dummy variable to allow for parameters to change over time. The results show a structural break after which hospitals change not only the way in which they provide their services, but also the kind of services they provide, favouring the quicker treatment of patients on a day basis. No significant improvement in technical efficiency is detected instead over time, nor any significant difference in efficiency between trusts and non-trusts.

Zur Messung und Erklärung von Produktivitätsentwicklungen: Eine Analyse auf Basis eines stochastischen Distanzfrontieransatzes / Measuring and Explaining Productivity Growth: A Distance Function Approach

Zusammenfassung Die Veränderung der totalen Faktorproduktivität wird anhand einer outputorientierten Distanzfunktion in die vier Komponenten technische Veränderung, technische Effizienz, ailokative Effizienz und Skaleneffekt zerlegt. Mit Hilfe von Paneldaten, die für landwirtschaftliche Unternehmen im Zeitraum von 1991 bis 1994 in Deutschland und Polen erhoben wurden, werden stochastische outputorientierte Translog-Distanzfunktionen geschätzt. Eine Abschätzung des Produktivitätspotenzials der beiden Länder im horizontalen Vergleich erfolgt mit Hilfe einer Metadistanzfrontier. Die Ergebnisse lassen vermuten, dass die Produktivitätsentwicklung in Deutschland (+ 6%) und Polen (- 5%) im Wesentlichen von der Komponente Technische Veränderung vorgegeben wird.

Semiparametric-efficient estimation of AR(1) panel data models

This study focuses on the semiparametric-efficient estimation of random effect panel models containing AR(1) disturbances. We also consider such estimators when the effects and regressors are correlated (Hausman and Taylor, 1981). We introduce two semiparametric-efficient estimators that make minimal assumptions on the distribution of the random errors, effects, and the regressors and that provide semiparametric-efficient estimates of the slope parameters and of the effects. Our estimators extend the previous work of Park and Simar (J. Amer. Statist. Assoc. 89 (1994) 929), Park et al. (J. Econometrics 84 (1998) 273), and Adams et al. (J. Business Econom. Statist. 17 (1999) 349). Theoretical derivations are supplemented by Monte Carlo simulations. We also provide an empirical illustration by estimating relative efficiencies from a stochastic distance function for the U.S. banking industry over the 1980s and 1990s. In markets where regulatory constraints have been lessened or done away with, the deregulatory dynamic market shocks may not be adjusted to immediately and may induce a serial correlation pattern in firm's use of best-practice banking technologies. Our semiparametric estimators have an important role in providing robust point estimates and inferences of the productivity and efficiency gains due to such economic reforms.

Specification of Distance Functions Using Semi-and Nonparametric Methods With An Application to the Dynamic Performance of Eastern and Western European Air Carriers 1

In this paper we examine the productive performance of a group of three East European carriers and compare it to thirteen of their West European competitors during the period 1977–1990. We first model the multiple output/multiple input technology with a stochastic distance frontier using recently developed semiparametric efficient methods. The endogeneity of multiple outputs is addressed in part by introducing multivariate kernel estimators for the joint distribution of the multiple outputs and potentially correlated firm random effects. We augment estimates from our semiparametric stochastic distance function with nonparametric distance function methods, using linear programming techniques, as well as with extended decomposition methods, based on the Malmquist index number. Both semi- and nonparametric methods indicate significant slack in resource utilization in the East European carriers relative to their Western counterparts, and limited convergence in efficiency or technical change between them. The implications are rather stark for the long run viability of the East European carriers in our sample.

Mergers and technical efficiency in Spanish savings banks: A stochastic distance function approach

The aim of this paper is to test the temporal variation of technical efficiency of Spanish savings banks during the period 1985–1998. Furthermore, we test whether merged and non-merged firms have different levels and temporal patterns of technical efficiency. A stochastic output distance function (R.W. Shephard, Theory of Cost and Production Functions, Princeton University Press, Princeton, NJ) is employed to accommodate multiple output technology. The distance function provides the advantage that it does not need information about prices, so it can accommodate the multi-product nature of the financial sector only using the quantities as data (an important point when the assumptions about perfectly competitive markets are unlikely to be met). The temporal variation of efficiency is modeled extending the Battese and Coelli (Journal of Productivity Analysis 3 (1992) 153–169) approach in two ways: relaxing the monotonicity of the temporal variation pattern of the efficiency term, and allowing for different patterns of efficiency change between merged and non-merged firms.