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Efficiency Measurement
William Greene Stern School of Business New York University
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Session 10 Summary
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Inefficiency
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Methodologies Data Envelopment Analysis Stochastic Frontier Modeling
HUGE User base Largely atheoretical Applications in management, consulting, etc. Stochastic Frontier Modeling More theoretically based – “model” based More active technique development literature Equally large applications pool
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SFA Models Normal – Half Normal Normal-Gamma Truncation
Heteroscedasticity Heterogeneity in the distribution of ui Normal-Gamma Classical vs. Bayesian applications Flexible functional forms for inefficiency
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Modeling Settings Production and Cost Models Multiple output models
Cost functions Distance functions, profits and revenue functions
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Modeling Issues How to handle observable heterogeneity – “where do we put the zs?” Panel data Is inefficiency time invariant? Separating heterogeneity from inefficiency Allocative inefficiency and the Greene problem
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Range of Applications Regulated industries – railroads, electricity, public services Health care delivery – nursing homes, hospitals, health care systems (WHO) Banking and Finance Many other industries. See Lovell and Schmidt “Efficiency and Productivity” 27 page bibliography. Table of over 200 applications since 2000
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