Panel data stochastic frontier model with determinants of persistent and transient inefficiency

Lai, Hung-pin; Kumbhakar, Subal C.

doi:10.1016/j.ejor.2018.04.043

“…Other developments of the fourcomponent error term SFA model allow identification of determinants of inefficiency (see e.g. Reifschneider and Stevenson (1991), Kumbhakar et al (1991), Battese and Coelli (1995), Badunenko and Kumbhakar (2017), Lai and Kumbhakar (2018) and Lien et al (2018) for more comprehensive descriptions). The determinants of the four component inefficiencies are not as such in the scope of this paper.…”

Section: The Evolution Of Four-component Sfa Modelsmentioning

confidence: 99%

“…Recent studies on efficiency measurements have focused not only on overall efficiency measures, but have also distinguished between transient and persistent. The distinction between types of inefficiency may have important implications for choosing optimal energy policy aimed at mitigating inefficiency (Kumbhakar et al, 2014;Kumbhakar and Lien, 2017;Lai and Kumbhakar, 2018;Lien et al 2018). While transient energy inefficiency might be addressed by policies affecting short-term performance, mitigating persistent inefficiency might require policies aimed at making structural changes.…”

Section: Introductionmentioning

confidence: 99%

Is industrial energy inefficiency transient or persistent? Evidence from Swedish manufacturing

Amjadi

¹

,

Lundgren

²

2022

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Energy inefficiency in production implies that the same level of goods and services could be produced using less energy. The potential energy inefficiency of a firm may be linked to long-term structural rigidities in the production process and/or systematic shortcomings in management (persistent inefficiency), or associated with temporary issues like misallocation of resources (transient inefficiency). Eliminating or mitigating different inefficiencies may require different policy measures. Studies measuring industrial energy inefficiency have mostly focused on overall inefficiencies and have paid little attention to distinctions between the types. The aim of this study was to assess whether energy inefficiency is transient and/or persistent in the Swedish manufacturing industry. I used a firm-level panel dataset covering fourteen industrial sectors from 1997-2008 and estimated a stochastic energy demand frontier model. The model included a four-component error term separating persistent and transient inefficiency from unobserved heterogeneity and random noise. I found that both transient and persistent energy inefficiencies exist in most sectors of the Swedish manufacturing industry. Overall, persistent energy inefficiency was larger than transient, but varied considerably in different manufacturing sectors. The results suggest that, generally, energy inefficiencies in the Swedish manufacturing industry were related to structural rigidities connected to technology and/or management practices.

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“…Other developments of the fourcomponent error term SFA model allow identification of determinants of inefficiency (see e.g. Reifschneider and Stevenson (1991), Kumbhakar et al (1991), Battese and Coelli (1995), Badunenko and Kumbhakar (2017), Lai and Kumbhakar (2018) and Lien et al (2018) for more comprehensive descriptions). The determinants of the four component inefficiencies are not as such in the scope of this paper.…”

Section: The Evolution Of Four-component Sfa Modelsmentioning

confidence: 99%

Is Industrial Energy Inefficiency Transient or Persistent? Evidence from Swedish Manufacturing

Amjadi¹

2020

SSRN Journal

0

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Energy inefficiency in production implies that the same level of goods and services could be produced using less energy. The potential energy inefficiency of a firm may be linked to long-term structural rigidities in the production process and/or systematic shortcomings in management (persistent inefficiency), or associated with temporary issues like misallocation of resources (transient inefficiency). Eliminating or mitigating different inefficiencies may require different policy measures. Studies measuring industrial energy inefficiency have mostly focused on overall inefficiencies and have paid little attention to distinctions between the types. The aim of this study was to assess whether energy inefficiency is transient and/or persistent in the Swedish manufacturing industry. I used a firm-level panel dataset covering fourteen industrial sectors from 1997-2008 and estimated a stochastic energy demand frontier model. The model included a four-component error term separating persistent and transient inefficiency from unobserved heterogeneity and random noise. I found that both transient and persistent energy inefficiencies exist in most sectors of the Swedish manufacturing industry. Overall, persistent energy inefficiency was larger than transient, but varied considerably in different manufacturing sectors. The results suggest that, generally, energy inefficiencies in the Swedish manufacturing industry were related to structural rigidities connected to technology and/or management practices.

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“…In order to perform the analysis, linearly homogeneity of input variables and symmetric secondorder parameters are two assumptions needed to be imposed. The use of longitudinal setting by adding time trend variable is justified and explained in Kutlu et al (2019) and Lai & Kumbhakar (2018). These assumptions partly explain why some researchers prefer DEA which makes no assumption of the underlying distribution of inefficiency.…”

Section: Sfamentioning

confidence: 99%

Comparison of Bank Efficiencies between the US and Canada: Evidence Based on SFA and DEA

Liu¹

2019

JOC

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This paper aims to achieve two targets. First, using balanced panel data from 2008 to 2017 it compares the cost efficiencies between US and Canadian commercial banks to examine whether structural differences in the two countries' banking industries create differences in efficiencies. Since efficiency is a valuable measurement to indicate the ability of an organization to utilize limited resources to produce, in this article we compare the operating competitiveness of these banks. Next, to achieve the first goal, both the Stochastic Frontier Analysis and Data Envelopment Analysis are employed to examine cost efficiencies in order to find new evidence given the mixed results in previous literature. Profit efficiency is also compared with cost efficiency based on a parametric approach. The results regarding cost and profit efficiency conforms to prior studies indicating a relatively low correlation. However, SFA and DEA produce very different and uncorrelated results, though DEA generates overall lower efficiencies, as expected. Thus, the findings suggest that methodology cross-checking along with information regarding variables selection are necessary before decision making. Essentially, there is not enough evidence to conclude that bank efficiencies are different either between the US and Canada, or between large and small banks in US. However, DEA suggests an increasing trend in average efficiencies, as this parameter is not time-adjusted. A more technical exploration of how to reliably measure efficiencies is awaited to make advancements in this area.

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Panel data stochastic frontier model with determinants of persistent and transient inefficiency

Cited by 49 publications

References 10 publications

Is industrial energy inefficiency transient or persistent? Evidence from Swedish manufacturing

Is industrial energy inefficiency transient or persistent? Evidence from Swedish manufacturing

Is Industrial Energy Inefficiency Transient or Persistent? Evidence from Swedish Manufacturing

Comparison of Bank Efficiencies between the US and Canada: Evidence Based on SFA and DEA

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