Non-radial profit performance: An application to Taiwanese banks

This research modifies the directional Russell measure (DRM) of Fukuyama and Weber (2009) [1] to decompose the Nerlovian profit efficiency in Chambers et al. (1998) [2] so as to obtain a generalized measure that completely excludes technical inefficiency from allocative inefficiency. Based on such a decomposition, we further develop a new slack-based and profit-oriented productivity indicator, combining the Nerlovian profit measure with the conventional Luenberger productivity indicator (LPI), in order to provide a full picture of the sources of productivity change. Productivity change, based on the profit boundary, is decomposed into four components: the change in technical efficiency; the change in allocative efficiency; the shift of technology; and the price effect from outputs and inputs. This decomposition provides a more complete picture of the sources of productivity change. The above indicator is used herein to measure the productivity change of Taiwanese banks in terms of profit.     

Non-oriented slack-based decompositions of profit change with an application to Taiwanese banking

A change in profit can originate from the output side and the input side. In the spirit of work by Tone [1] and follows Grifell-Tatjé and Lovell's [2], we propose a non-oriented slacks-based measure (SBM) model to decompose the change in the operating profit into various meaningful components: quantity effect and a price effect. The quantity effect can be decomposed into a productivity effect and an activity effect. The productivity effect is further decomposed into a technical effect and an operating efficiency effect. Both of them include an output side, which will result in a change in revenue and an input side which will result in a change in cost. The activity effect can be decomposed into a product mix effect, a resource mix effect and a scale effect. We illustrate our decompositions to the Taiwanese banking sector during the period 1994-2002 using the average of the base and current prices to evaluate these contributions. We find ignoring input side effects on the decomposition of profit changes would cause misleading results in managerial issues.     

Nerlovian profit inefficiency in non-fully-competitive settings: Definition and decomposition

Nerlovian profit inefficiency applies directional distance functions, which allow specification of the direction in which the decision-making units will be evaluated. Through some degree of adjustable prices, the source of Nerlovian profit inefficiency can further be decomposed into technical inefficiency, price inefficiency and allocative inefficiency. The proposed indicator is demonstrated by an empirical application to a sample of Taiwanese banks in 2011. The example explains how the empirical usefulness of the proposed approach is able to properly measure Nerlovian profit inefficiency and its components, and shows how the price adjustment affects the banks' performance in Taiwan.     

效用型Malmquist指数方法及火电类上市公司实证分析

文章定义了一种基于距离函数的效用型Malmquist指数,并将其分解为技术效率、技术进步、配置效率和系统外生效应等多个指标,该指数采用"期望效用最大"而非"期望产出最大"的优化原则寻找最优决策单元。该指数适用于寡头垄断行业或需要综合考虑经济效益、社会影响的社会公共品行业。最后以2006到2007年中国火电类上市公司进行实证分析,证明与投入型Malmquist指数相比,效用型Malmquist指数评价结果更为客观,经济解释更加明确。     

An Auction Mechanism for Pricing and Capacity Allocation with Multiple Products

We consider a pricing and short‐term capacity allocation problem in the presence of buyers with orders for bundles of products. The supplier's objective is to maximize her net profit, computed as the difference between the revenue generated through sales of products and the production and inventory holding costs. The objective of each buyer is similarly profit maximization, where a buyer's profit is computed as the difference between the time‐dependent utility of the product bundle he plans to buy, expressed in monetary terms, and the price of the bundle. We assume that bundles' utilities are buyers' private information and address the problem of allocating the facility's output. We directly consider the products that constitute the supplier's output as market goods. We study the case where the supplier follows an anonymous and linear pricing strategy, with extensions that include quantity discounts and time‐dependent product and delivery prices. In this setting, the winner determination problem integrates the capacity allocation and scheduling decisions. We propose an iterative auction mechanism with non‐decreasing prices to solve this complex problem, and present a computational analysis to investigate the efficiency of the proposed method under supplier's different pricing strategies. Our analysis shows that the problem with private information can be effectively solved with the proposed auction mechanism. Furthermore, the results indicate that the auction mechanism achieves more than 80% of the system's profit, and the supplier receives a higher percentage of profit especially when the ratio of demand to available capacity is high.     

Risk-based decompositions of the meta profit efficiency of Taiwanese and Chinese banks

This study measures the profit efficiencies of Taiwanese and Chinese banks with the assumption that both types could operate under the metafrontier. To consider the risk consideration of banks, we include equity capital as a quasi-fixed input and develop the risk-based measures of the meta Nerlovian profit efficiency. We further decompose meta profit efficiency and gap into technology and allocative efficiencies and gaps. We use 34 Taiwanese banks and 70 Chinese banks in 2011 to empirically measure profit efficiency and its decompositions. Empirical results show that the Chinese state-owned banks perform the best in meta profit efficiency, followed by Chinese joint-equity banks and Taiwanese state-owned banks. These three types of banks are performing better than the other types of banks in Taiwan and China. We also find that Taiwanese private banks perform better in profit and technical efficiencies versus Chinese city banks.     

基于前沿分析方法的中国工业部门 广义碳生产率指数测算及变化分解

碳生产率能将低碳经济的两大目标融为一体,工业部门作为能源密集型部门,是二氧化碳排放的主体,其碳生产率的变化深刻影响着中国整体碳生产率的格局。目前,大部分学者都用GDP与二氧化碳排放量的比值作为衡量碳生产率的指标,然而二氧化碳排放空间作为一种投入要素,其产出除了经济绩效外还包括环境、就业等综合绩效。本文基于广义碳生产率的概念,通过对前沿分析方法的比较,选择基于方向性距离函数的DEA方法,测算了中国工业部门各细分行业从2004-2009年的广义碳生产率指数,并对其变化进行了分解。结果表明:(1)中国工业部门广义碳生产率指数整体小于1,说明广义碳生产率水平整体上存在下降的趋势;(2)引致工业部门广义碳生产率指数整体小于1的主要原因是技术效率和规模效率低下。     

Price Setting With Menu Cost for Multiproduct Firms

We model the decisions of a multiproduct firm that faces a fixed “menu” cost: once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm's decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration both increase with the number of products; they more than double as the number of products goes from 1 to 10, quickly converging to the response of Taylor's staggered price model.     

Graph productivity change measure using the least distance to the pareto-efficient frontier in data envelopment analysis

This paper proposes a new method to measure productivity change of decision making units in the full input-output space. The new approach is based on the calculation of the least distance to the Pareto-efficient frontier and hence provides the closest targets for evaluated decision making units to reach the strongly efficient frontier with least effort. Another advantage of the new methodology is that it always leads to feasible solutions. The productivity change in the new approach is operationalized as a Luenberger-type indicator in the Data Envelopment Analysis framework and it is decomposed into efficiency change and technical change. The paper empirically illustrates the new method using recent data on the Spanish quality wine sector.     

基于投入距离函数的单要素技术效率测量方法研究

在生产中，由于企业并未掌握关于生产技术的完全信息，因此可能导致不同生产要素具有不同的技术效率水平。而传统的"径向"技术效率测量方法并不能识别生产要素之间的技术效率差异。为解决这一问题，现有的文献中分别提出了基于利润函数和方向距离函数的测量方法。但利润函数的估计需要用到难以收集的价格数据；估计方向距离函数需要事先设定投入要素缩减的方向，而这一方向对于研究者是未知的。基于投入距离函数，本文构建了一个新的可以测量单要素技术效率的框架，且无需价格数据和事先设定"方向"。文章采用贝叶斯方法分两步估计该模型：首先得到模型参数的估计值；其次在模型参数估计值给定的基础上再估计单个要素的技术效率水平。蒙特卡洛模拟分析发现，与直接估计各要素的技术效率的方法相比，这种"两步法"可以更快的实现马尔科夫蒙特卡洛（MCMC）过程的收敛，并能够较为精确的估计各要素的技术效率水平。之后将该方法应用于北京大学企业社会责任调查的数据，估计了资本和劳动力的技术效率水平。结果显示，企业在利用资本中几乎不存在技术效率损失，并且企业间的资本技术效率水平无明显差异。企业技术效率损失主要来自于劳动力利用不足，且企业间劳动力技术效率水平差异较大。平均而言，劳动力的技术效率水平为77%，即在保持产出和资本投入不变的情况下，可以使劳动力的投入下降23%。这个例子表明，本文提出的方法可以识别生产中导致技术效率损失的主要原因，从而有助于找到提升生产效率的解决方案。     

Profit efficiency analysis under limited information with an application to German farm types

Lack of information about technology and prices often hampers the empirical assessment of the profit maximization hypothesis (viz. by measuring the degree of profit efficiency). The non-parametric Data Envelopment Analysis (DEA) methodology can deal with such incomplete information. We exploit the implicit but largely neglected profit interpretation of the DEA model that builds on assumptions of monotone and convex production possibility sets. We show how its embedded assessment of necessary conditions for profit maximization can be strengthened given partial information in the form of monetary sub-cost/-revenue data (that are often easier obtained than the pure quantity data). Finally, we argue that a ‘mix’ efficiency analysis is naturally complementary to such a profit efficiency analysis. An application to German farm types complements our methodological discussion. By using non-parametric statistical tests, we further demonstrate the potential of the non-parametric approach in deriving strong and robust statistical evidence while imposing minimal structure on the setting under study. In particular, we look for significant efficiency variation over regions.     

Efficiency and stock performance of EU banks: Is there a relationship?

The purpose of this paper is to examine whether the stock performance of EU listed banks is related to their efficiency. Our sample consists of 171 banks operating in 15 EU markets over the period 2002–2006. First, we use stochastic frontier analysis to estimate the cost and profit efficiency of banks, while controlling for environmental factors. Then, we investigate if changes in profit and cost efficiency are reflected in changes in stock prices. Our results indicate that the change in profit efficiency has a positive and significant impact on stocks prices; however, there is no relationship between changes in cost efficiency and stock returns.     

Regional Labour Market Matching Functions and Efficiency Analysis

Abstract. Stochastic production frontiers are used for estimating regional matching functions where unemployment outflow is ‘produced’ by the unemployed and vacancies. The frontier is estimated using regional panel data from Finland from 1988 to 1997 and the Battese and Coelli frontier model, where the explanatory factors are included in the inefficiency term. The stochastic frontier matching function has constant returns, whereas in OLS estimation with fixed effects the returns are slightly increasing. Unemployment and vacancies in neighbouring regions have a spillover effect on efficiency. Excess job reallocation in a region deteriorates matching efficiency. The decomposition of total factor productivity change in matching to efficiency change and change in matching technology is also investigated by interpreting the matching frontier as a distance function and using Malmquist indexes. There is a downward trend in the technology, but short‐term variations are dominated by cyclical changes in efficiency.     

An expanded decomposition of the Luenberger productivity indicator with an application to the Chinese healthcare sector

The objective of this research is to combine productivity analysis at the “firm-level” and the “industry-level” so that a novel, fuller decomposition of the sources of productivity change can be undertaken. Productivity change is decomposed into technological progress, technical, mix, and scale efficiency effects. Specifically, our decomposition allows us to capture changes in productivity due to the reallocation of inputs or outputs across productive units. In practice, such reallocation might take place across plants operated by the same firm, across regions within a country, or via mergers and acquisitions. The new decomposition of the aggregate Luenberger productivity indicator is illustrated using data at both the provincial and regional levels for China's healthcare sector over the period 2009–2014. Our results indicate that the growth of the aggregate Luenberger productivity indicator varied across both time and regions. We find that China's regional productivity growth in healthcare was primarily driven by technological progress, while the contributions of the other components of productivity change were smaller and more varied across regions.     

Effect of Quality Management Systems and Total Quality Management on Productivity Before and After: Empirical Evidence from the Indian Auto Component Industry

We study the linkages between firm‐level quality initiatives such as quality management systems (QMS) and total quality management (TQM) and output productivity in the Indian auto component industry. We use externally validated quality certification and quality awards as proxies for QMS and TQM, respectively, as it is difficult to directly measure the QMS and TQM efforts of firms. We use an unbalanced panel of 220 firms and a balanced panel of 73 firms from the Indian auto component industry over the period 1993–2006 to study these links. Both parametric as well as non‐parametric approaches are used, as appropriate, to measure the rate of change in productivity and the impact of quality initiatives on productivity change during this period. We determine the proportion of productivity resulting from technical change and relative efficiency change, thus providing insights into the structure of productivity improvements. We find that TQM efforts resulted in a high rate of productivity change (11%) in the award‐winning firms after the award. On the other hand, pre‐certification productivity change due to QMS was 5% and post‐certification change was 3.6%. In the periods prior to certification, productivity change was driven mainly by technical change; whereas the source of productivity change after certification is mixed. However, prior to awards, productivity change was driven mainly by relative efficiency change, whereas post‐award productivity change was due to technical change. The results suggest that management focus on attaining certification did generate conceptual learning (linked to technical change) during the period leading to certification, but these effects were not significant after certification. The results also suggest that the TQM programs generated significant productivity gains in the long run, although setting the associated systems in place did not result in significant productivity change prior to winning awards. Thus, the study provides direct but nuanced evidence linking quality certification as well as the adoption of TQM programs to the associated conceptual and operational learning processes and their impact on the change in productivity.     

Financial Hedging and Optimal Procurement Policies under Correlated Price and Demand

We consider a firm that procures an input commodity to produce an output commodity to sell to the end retailer. The retailer's demand for the output commodity is negatively correlated with the price of the output commodity. The firm can sell the output commodity to the retailer through a spot, forward or an index‐based contract. Input and output commodity prices are also correlated and follow a joint stochastic price process. The firm maximizes shareholder value by jointly determining optimal procurement and hedging policies. We show that partial hedging dominates both perfect hedging and no‐hedging when input price, output price, and demand are correlated. We characterize the optimal financial hedging and procurement policies as a function of the term structure of the commodity prices, the correlation between the input and output prices, and the firm's operating characteristics. In addition, our analysis illustrates that hedging is most beneficial when output price volatility is high and input price volatility is low. Our model is tested on futures price data for corn and ethanol from the Chicago Mercantile Exchange.     

内生价格歧视理论:以电信业选择资费为例

本文构建了两子市场和多子市场内生价格歧视简约理论模型.分析了客户转换成本对子市场细分的影响,最终对厂商利润、产出、消费者剩余和社会福利的影响.应用该模型,对电信业的选择资费深度探讨,给出产出和福利增加的原因.     

The measurement of revenue inefficiency over time: An additive perspective

In this paper, we measure and decompose revenue inefficiency over time while accounting for all sources of technical inefficiencies. Our proposed decomposition exploits the dual relationship between the weighted additive distance function and revenue inefficiency in Aparicio et al. [1]. With the aid of the Luenberger indicator, we decompose this indicator into productivity change, and overall allocative change components. The importance of such decomposition is that it provides a complete picture of the sources of productivity change, thus obtaining a slack free allocative component. Finally, the model is applied to the French wine sector to illustrate its practicality: we track how revenue inefficiency evolves in French wine regions over the 2004–2013 period, before and after the implementation of Common Market Organization policies in Europe in 2008.     

Product Differentiation,Multiproduct Firms,and Estimating the Impact of Trade Liberalization on Productivity

This paper studies whether removing barriers to trade induces efficiency gains for producers. Like almost all empirical work which relies on a production function to recover productivity measures, I do not observe physical output at the firm level. Therefore, it is imperative to control for unobserved prices and demand shocks. I develop an empirical model that combines a demand system with a production function to generate estimates of productivity. I rely on my framework to identify the productivity effects from reduced trade protection in the Belgian textile market. This trade liberalization provides me with observed demand shifters that are used to separate out the associated price, scale, and productivity effects. Using a matched plant–product level data set and detailed quota data, I find that correcting for unobserved prices leads to substantially lower productivity gains. More specifically, abolishing all quota protections increases firm‐level productivity by only 2 percent as opposed to 8 percent when relying on standard measures of productivity. My results beg for a serious reevaluation of a long list of empirical studies that document productivity responses to major industry shocks and, in particular, to opening up to trade. My findings imply the need to study the impact of changes in the operating environment on productivity together with market power and prices in one integrated framework. The suggested method and identification strategy are quite general and can be applied whenever it is important to distinguish between revenue productivity and physical productivity.     

COMPETING MATCHMAKING

We study how matchmakers use prices to sort heterogeneous participants into competing matching markets and how equilibrium outcomes compare with monopoly in terms of prices, matching market structure, and sorting efficiency under the assumption of complementarity in the match value function. The role of prices to facilitate sorting is compromised by the need to survive price competition. We show that price competition leads to a high‐quality market that is insufficiently exclusive. As a result, the duopolistic outcome can be less efficient in sorting than the monopoly outcome in terms of total match value in spite of servicing more participants. (JEL: C7, D4)