A Comparison of DEA and SFA Approaches: Application to the US Non-Life Insurance Market

Sara Suárez-Fernández, Raquel Quiroga-Garcia and Isabel Manzano-Perez

Asian Journal of Applied Economics, 2021, vol. 28, issue 2

Abstract: Analyzing the efficiency of markets is essential for both business managers and policymakers. On the one hand, private companies need to be as efficient as possible, given that their competitiveness and their chance of survival depend on it. On the other hand, public businesses claim to be committed to investing public funds in the best way. To be competitive, firms need to improve their performance by incorporating the benchmark practices of their field in their management, and studying efficiency levels may help identify potential areas for development. However, does the efficiency score depend on the method chosen to calculate it? In this paper, our aim is to compare the rate of agreement between two different approaches to measure efficiency, the parametric and the non-parametric. For the parametric procedure, we use stochastic frontier analysis (SFA), while in the case of the non-parametric, we use data envelopment analysis (DEA) and the dynamic approach of the DEA, the window DEA. To do so, we analyze 923 non-life (property/casualty) US insurance companies in the period 2007–2011. According to our results, comparable efficiency scores are found using SFA and DEA methodologies. More importantly, the two approaches rank companies in a similar order, mostly agreeing on which are the most and the least efficient firms. Therefore, we support that the approaches can be used complementarily.

Keywords: Productivity; Analysis (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/334388/files/18.Vol28Issue2_p107-127.pdf (application/pdf)

Related works:
Journal Article: A Comparison of DEA and SFA Approaches: Application to the US Non-Life Insurance Market (2021)
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: https://EconPapers.repec.org/RePEc:ags:thkase:334388

DOI: 10.22004/ag.econ.334388

Access Statistics for this article

More articles in Asian Journal of Applied Economics from Kasetsart University, Center for Applied Economics Research Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().