A Consistent Approach to Cost Efficiency Measurement

George C. Bitros () and Efthymios G. Tsionas

Oxford Bulletin of Economics and Statistics, 2004, vol. 66, issue 1, pages 49-69

Abstract: Consistent specifications of the allocative inefficiency function in 'cost plus input share equations' systems may be difficult, if not impossible, to find because most plausible ones violate certain reasonable "a priori" conditions. Moreover, the models to which they lead give rise to highly non-linear likelihood functions that are very hard to estimate. In an effort to confront these difficulties, this paper adapts an idea first suggested by Greene (1993) that allocative inefficiency ought to be related to input prices and allocative distortions in the input share equations. The system of 'cost plus input demand equations' that emerges is estimated by standard seemingly unrelated regression (SUR) techniques using data from private and state firms that operated in Greek manufacturing during the 1979-88 period. Among other findings, the estimates show that overall inefficiency for private and state firms was 63.5% and 102.2%, respectively in comparison with the least inefficient firms in their class. In relative terms these figures imply that state firms were almost 61% less efficient than private firms were. Technical and allocative reasons amounting to 64% and 36%, respectively, accounted for this excess inefficiency of state firms, in addition to differences in the utilization of labour, capital and debt. Lastly, it is found that the magnitudes of technical and allocative inefficiencies depend critically upon a self-consistent specification of the allocative inefficiency function. Copyright 2004 Blackwell Publishing Ltd.

Date: 2004
View citations in EconPapers

Downloads: (external link)
http://www.blackwell-synergy.com/servlet/useragent ... &year=2004&part=null link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: A Consistent Approach to Cost Efficiency Measurement (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:obuest:v:66:y:2004:i:1:p:49-69

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0305-9049

Access Statistics for this article

Oxford Bulletin of Economics and Statistics is edited by Christopher Adam, Anindya Banerjee, Christopher Bowdler, Gavin Cameron, David Hendry, Adriaan Kalwij, John Knight and Jonathan Temple

More articles in Oxford Bulletin of Economics and Statistics from Department of Economics, University of Oxford
Series data maintained by Christopher F. Baum ().