Technical Efficiency Model Research Articles

Benchmarking and DEA: how to teach to and to learn from relative technical efficiency models

Introduction: Information transfer is critical in evaluating the efficiency of health and social care systems. Data envelopment analysis (DEA) is a useful tool to evaluate technical efficiency when a range of comparable decision making units (DMU) are involved in an uncertain system. DEA models, based on expert knowledge, must be carefully fitted to represent the framework under study. Theory and methods: We designed a Monte-Carlo DEA model based on adjusted expert knowledge. The model has been applied to the assessment of technical efficiency of small mental health areas (SMHA), composed by a complex array of social and health services. The DMUs Input/Output algebraic behaviour was adjusted to an Expert-driven Model of Community Care (B-MHCC). A preliminary version of the model has been applied to the assessment of divergent SMHA in Spain and in Chile. The probability of being efficient of 71 SMHA were analysed in Andalusia (Spain) using large health databases. Results: The model has shown its usability to identify both efficiency and inefficiency under uncertainty of highly complex DMUs. For all non-efficient SHA, I/O improvements needed to reach efficiency were also evaluated. Results show significant differences between SHA in Andalusia. Conclusions: Expert-driven Monte-Carlo DEA is a powerful tool to evaluate relative technical efficiency. Algebraic models need to be carefully fitted by expert knowledge and information transfer strategies should be included in model development. Discussion: Due to the system complexity, there are many SHA that can be considered efficient and many I/O profiles can be used for benchmarking.

Urban Vegetable Crop Production and Production Efficiency

The problem of food availability and access has become more acute in urban areas as growth has concentrated in metropolitan areas. Uneven distribution of income, prevalence of poverty, diminishing farmlands, inefficient distribution systems, and rising expectations have contributed to increasingly critical problems of food supply and distribution. Urban agriculture in developing economies has evolved in response to changing demand and supplies. The study was carried out in southwestern Nigeria, to determine the production efficiencies and causes of inefficiencies in urban production on a low lying, seasonally flooded, plain that has enough retained moisture to support dry season cropping of short duration crops. This is termed fadama agriculture. A sample survey of 242 urban vegetable farmers was conducted between and March 2006. Data on yield, planting combinations, and farm size were analyzed using descriptive and inferential statistics. The stochastic frontier model of technical efficiency was used in estimating the production efficiencies of farms, and the sources of technical inefficiency. Mean farm size was 0.54 ha; the mean age of producers was 42.6 years while the mean technical efficiency was 74.36%. The major sources of technical efficiencies were found to be in the employment of labor, and in the use of land and seed or cultivar resources. Telfaria occidentaleHook, Amaranthus hybridusL. and Zea maysL. combinations were found to be the common crops mix on fadama farms. Fadama agriculture can be used to alleviate food shortages among urban dwellers in countries with developing economies.

Supply chain performance measurement system using DEA modeling

PurposeThis paper aims to illustrate the use of data envelopment analysis (DEA) in measuring internal supply chain performance.Design/methodology/approachTwo DEA models were developed – the technical efficiency model and the cost efficiency model. The models are further enhanced with scenario analysis to derive more meaningful business insights for managers in making resources planning decisions.FindingsThe information obtained from the DEA models helps managers to identify the inefficient operations and take the right remedial actions for continuous improvement. More importantly, the opportunity cost (forgone profit) calculated serves as a good reference to managers to make efficient decisions on resource allocations.Research limitations/implicationsResults are based on the deterministic data set. Future enhancement of the study would be to look into the possibility of modeling DEA in a stochastic supply chain environment (non‐deterministic) due to the fact that supply chain operates in a dynamic environment.Practical implicationsThe proposed DEA‐based approach provides useful managerial implications in the measurement of supply chain efficiency. The study proves the usefulness of DEA as a decision‐making tool in supply chain.Originality/valueThis paper provides useful insights into the use of DEA as a modeling tool to aid managerial decision making in measuring supply chain efficiency.

Politics and Productivity

We use a stochastic-frontier approach to study the effects of political and regulatory institutions on aggregate productivity in 39 countries from 1975 to 1990. We show that technical efficiency is positively related to policies supporting laissez-faire and political structures that promote policy stability. Moreover, models of technical efficiency incorporating both measures perform better than models including only one or the other. This suggests that economic performance depends not only on current policies, but also on the confidence of market participants and outside investors that these policies will remain in place. Keywords: economic freedom, policy stability, institutions, productivity, stochastic frontier

A preliminary study on using Data Envelopment Analysis (DEA) in measuring supply chain efficiency

This paper illustrates the use of Data Envelopment Analysis (DEA) in measuring supply chain efficiency. Two models were developed – Technical Efficiency (TE) model and Cost Efficiency (CE) model. The information obtained enable managers to identify inefficient operations and take appropriate actions for improvement. The opportunity cost serves as a good reference on resource allocations. The models are further enhanced with scenario analysis to derive more meaningful insights for resources planning. The study proves the usefulness of DEA as a decision-making tool in supply chain. Future research could look into the possibility of modelling DEA in a stochastic supply chain environment.

Determinants of Technical Efficiency in Urban Food Crop Production in Ibadan Metropolis, Oyo State, Nigeria

ABSTRACT This study analysed the level and the determinants of technical efficiency among urban crop farmers in Ibadan metropolis. The random sampling technique was used in selecting 85 farmers from the following three areas where urban food crop production is prominent: Ajibode, Ijokodo, and Eleyele. The data were collected through structured questionnaires and analysed using both descriptive statistics and stochastic production frontier based on the Cobb-Douglas production function. The results reveal that farmland, family labour, and plantlings are statistical determinants of urban food crop production in the study area. Fertilizer and hired labour are, however, not statistically significant in influencing urban food crop production. The result of the determinants of technical efficiency model reveals that full-time occupation in urban farming and sole-cropping pattern were positively related to technical efficiency. An increase in the age, experience, and years of formal education of the urban farmers increases the level of technical efficiency. The policy implication is that there are still more opportunities to raise the present level of technical efficiency of urban crop production in the study area. Educating farmers so that they are more receptive to modern improved technologies coming from the agricultural research system can lead to higher output per unit of input.

Measuring efficiency in allocating inputs among outputs with DEA

Building on Data Envelopment Analysis technical efficiency models developed by Färe et al. (2004) and Barnum and Gleason (2005), a procedure is illustrated for estimating a firm's efficiency in allocating inputs among the production technologies producing its outputs.

Technology choice and efficiency on Australian dairy farms*

Deregulation of the Australian dairy industry, specifically the removal of price subsidies to ‘market milk’, as well as ongoing drought in many dairy regions, has placed considerable pressure on farm cash income and a search for ways in which dairy farms can be made to operate more efficiently. Using traditional farm survey data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for dairy farms in New South Wales and Victoria, determining the relative importance of each input in dairy production, the effects of key technology variables on farm efficiency, and overall farm profiles based on the efficiency rankings of dairy producers. Results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles indicate that those in the ‘high efficiency group’ largely employ either rotary or swing-over dairy shed technology and have almost three times the proportional amount of land under irrigation.

Developing foreign bank efficiency models for DEA grounded in finance theory

We develop foreign bank technical, cost and profit efficiency models for particular application with data envelopment analysis (DEA). Key motivations for the paper are (a) the often-observed practice of choosing inputs and outputs where the selection process is poorly explained and linkages to theory are unclear, and (b) foreign bank productivity analysis, which has been neglected in DEA banking literature. The main aim is to demonstrate a process grounded in finance and banking theories for developing bank efficiency models, which can bring comparability and direction to empirical productivity studies. We expect this paper to foster empirical bank productivity studies.

Efficiency and productivity of employment offices: evidence from Sweden

PurposeThis paper aims to measure the efficiency and productivity of Swedish employment offices.Design/methodology/approachUsing four inputs, five outputs, and two quality attributes the efficiency and productivity of 253 Swedish employment offices are evaluated using models of relative technical efficiency and Malmquist productivity indices. The results are computed as solutions to linear programming problems for the 1992‐1995 periods.FindingsResults of the study find that the mean efficiency across offices varies between 74 and 78 percent. The mean productivity change demonstrates a decrease of 11 percent during the 1992‐1993 period, and an increase of 7 and 13 percents during 1993‐1994 and 1994‐1995 respectively.Research limitations/implicationsDifferent background characteristics of job seekers could possibly bias the result for some of the offices. Further research could use a dynamic model where different job seeker characteristics are taken into consideration.Practical implicationsThe paper provides an opportunity for inefficient/low productivity offices to study how offices identified as more efficient are producing their services.Originality/valueThis paper demonstrates how efficiency and productivity could be measured in a multi‐input, multi‐output employment office service sector setting where quality aspects are allowed to play a part.

Industry and firm effects of privatization in Malawian oligopolistic manufacturing

This study evaluates the impact of privatization on technical efficiency using panel data from privatized enterprises, state‐owned enterprises and private enterprises competing in oligopolistic Malawian manufacturing industries in which privatization took place. The results of the technical efficiency model, based on the period 1970–1997, provide evidence that privatization increases the technical efficiency of all firms (industry effects). Further incentives for improvements in technical efficiency are due to more domestic competition, multinationality and structural adjustment.

Non-parametric tests of returns to scale

This paper discusses various statistics for testing hypotheses regarding returns to scale in the context of non-parametric models of technical efficiency. In addition, the paper presents bootstrap estimation procedures which yield appropriate critical values for the test statistics. Evidence on the true sizes and power of the various proposed tests is obtained from Monte-Carlo experiments. This paper is an extension of earlier work in [Manage. Sci. 44 (1998) 49; J. Appl. Statist. 27 (2000b) 779].

Specification and Estimation of Production Risk, Risk Preferences and Technical Efficiency

AbstractThis article deals with specification and estimation of risk preferences, production risk, and technical inefficiency. It makes contribution in three separate areas of production economics. First, we model producers' attitude toward risk and derive risk preference functions (without assuming any parametric form of the utility function and any distribution of the error term representing production risk) when risk arises from production uncertainty and technical inefficiency. Second, the standard production risk model is extended to accommodate technical inefficiency and producers' attitude toward risk. Finally, the technical efficiency model is generalized to accommodate production risk and producers' attitude toward risk.

TESTING RESTRICTIONS IN NONPARAMETRIC EFFICIENCY MODELS

This paper discusses statistical procedures for testing various restrictions in the context of nonparametric models of technical efficiency. In particular, tests for whether inputs or outputs are irrelevant, as well as tests of whether inputs or outputs may be aggregated are formulated. Bootstrap estimation procedures which yield appropriate critical values for the test statistics are also provided. Evidence on the true sizes and power of the proposed tests is obtained from Monte Carlo experiments.

Efficiency measurement in the stochastic frontier model

Deterministic models of technical efficiency assume that all deviations from the production frontier are due to inefficiency. Critics argue that no allowance is made for measurement error and other statistical noise so that the resulting efficiency measure will be contaminated. The stochastic frontier model is an alternative that allows both inefficiency and measurement error. Advocates argue that the stochastic frontier models should be used despite other potential limitations because of the superior conceptual treatment of noise. As will be demonstrated in this paper, however, the assumed shape of the error distributions is used to identify a key production function parameter. Therefore, the stochastic frontier models, like the deterministic models, cannot produce absolute measures of efficiency. Moreover, we show that rankings for firm-specific inefficiency estimates produced by traditional stochastic frontier models do not change from the rankings of the composed errors. As a result, the performance of the deterministic models is qualitatively similar to that of the stochastic frontier models.