Antonio Peyrache

Industry structural inefficiency and potential gains from mergers and break-ups: A comprehensive approach

An efficiency indicator of industry configuration (allowing for entry/exit of firms) is presented which accounts for four sources components: (1) size inefficiencies arising from firms which can be conveniently split into smaller units; (2) efficiency gains realized through merger of firms; (3) re-allocation of inputs and outputs among firms; (4) technical inefficiencies. The indicator and its components are computed using linear and mixed-integer programming (data envelopment analysis models). A method to monitor the evolution of these components in time is introduced. Data on hospitals in Australia show that technical inefficiency of hospitals accounts for less than 15% of total industry inefficiency, with 40% attributable to size inefficiencies and the rest to potential mergers and re-allocation effects.

Labour Productivity and Technology Gap in European Regions: A Conditional Frontier Approach

Filippetti A. and Peyrache A. Labour productivity and technology gap in European regions: a conditional frontier approach, Regional Studies. A conditional frontier approach is proposed to capture the role of the technology gap in explaining labour productivity differences in 211 European regions in eighteen countries over the years 1995–2007. Labour productivity growth is driven by capital accumulation and technical change. In lagging behind regions, productivity growth is mainly driven by capital accumulation. The technology gap does not play a role in driving labour productivity growth and remains stable across regions in the considered period. Cohesion policy seems more effective in terms of fixed investment rather than technological capabilities, while technology gap remains a source of unused potential productivity growth.

Empirical tools to assess the sensitivity of directional distance functions to direction selection

Directional Distance Functions (DDFs) are becoming a popular way of measuring efficiency as they encompass the Shephard output and input distance functions as special cases. However, the most critical and still unsolved issue related to DDF remains the selection of the direction along which to measure the distance from the efficient frontier. In this article, we propose some empirical tools which allow to quantify the sensitivity of the efficiency measurement to the selection of the direction. The proposed tools are applied on a dataset on the Italian agricultural sector.

Testing procedures for detection of linear dependencies in efficiency models

The validity of many efficiency measurement methods rely upon the assumption that variables such as input quantities and output mixes are independent of (or uncorrelated with) technical efficiency, however few studies have attempted to test these assumptions. In a recent paper, Wilson (2003) investigates a number of independence tests and finds that they have poor size properties and low power in moderate sample sizes. In this study we discuss the implications of these assumptions in three situations: (i) bootstrapping non-parametric efficiency models; (ii) estimating stochastic frontier models and (iii) obtaining aggregate measures of industry efficiency. We propose a semi-parametric Hausmann-type asymptotic test for linear independence (uncorrelation), and use a Monte Carlo experiment to show that it has good size and power properties in finite samples. We also describe how the test can be generalized in order to detect higher order dependencies, such as heteroscedasticity, so that the test can be used to test for (full) independence when the efficiency distribution has a finite number of moments. Finally, an empirical illustration is provided using data on US electric power generation.

Is the convergence party over? Labour productivity and the technology gap in Europe

Closing the technology gap to reduce labour productivity disparities across Europe is crucial for the European cohesion policy. This article explores the sources of labour productivity growth in Europe over the period 1993–2007 in light of the enlargement process. Labour productivity growth has been mostly driven by capital accumulation. New Member States have significantly reduced their inefficiency and their technology gap. Disparities in the levels of labour productivity are still substantial and, to a considerable extent, they can be attributed to technology gap differences. This raises concerns about the process of convergence in labour productivity in Europe and suggests further policies aimed at reducing the technology gap.

Productivity growth and catching up: a technology gap explanation

Abstract This paper seeks to explain why some countries have managed to catch up in terms of labor productivity over the period 1993–2007 in 76 countries. By integrating the technology gap research within the standard growth-accounting approach, we introduce a methodology which allows us to split total factor productivity (TFP) change into two components: conditional technical inefficiency and the magnitude of the technology gap. We find that labor productivity growth depends both on investment in fixed capital and TFP. Fast emerging economies exhibit patterns of growth based in particular on the reduction of the technology gap, confirming the role of investment in technological capabilities to spur productivity catch-up. Looking at change in the distribution of labor productivity, emerging countries managed to shift from low productivity toward a medium level of productivity thanks to technology accumulation. Less advanced countries cannot rely only on technology diffusion and learning by doing, policies for technological capabilities accumulation are necessary.

Cost constrained industry inefficiency

In this paper a definition of industry inefficiency in cost constrained production environments is introduced. This definition uses the indirect directional distance function and quantifies the inefficiency of the industry in terms of the overall output loss, given the industry cost budget. The industry inefficiency indicator is then decomposed into sources components: reallocation inefficiency arising from sub-optimal configuration of the industry; firm inefficiency arising from a failure to select optimal input quantities (given the prevalent inputs prices); firm inefficiency due to lack of best practices. The method is illustrated using data on Ontario electricity distributors. These data show that lack of best practices is only a minor component of the overall inefficiency of the industry (less than 10 percent), with reallocation inefficiency accounting for more than 75 percent of the overall inefficiency of the system. An analysis based on counter-factual input prices is conducted in order to illustrate how the model can be used to estimate the effects of a change in the regulation regime.

The quality and efficiency of public service delivery in the UK and China

ABSTRACT The quality and efficiency of public service delivery in the UK and China. Regional Studies. This paper examines the efficiency of public service delivery at a regional level in both the UK and China using a method based on data envelopment analysis (DEA) that measures aggregate country-level inefficiency. This country-level inefficiency is then decomposed into three components: (1) lack of best practices at a regional level; (2) quality of the public service delivery; and (3) potential efficiency gains realizable via reallocation of expenditure across regions. The empirical results indicate that most UK inefficiency comes from the reallocation effect, while most Chinese inefficiency is attributable to lack of best practices; quality explains more of the expenditure variations in the UK relative to China. The paper speculates about fiscal (de)centralization as a possible explanation for such differences.

Technology or investment? An enquiry into the Chinese model of growth at the region level

This paper explores the relative contribution of different components to labour productivity growth – for example, the role of capital investment versus increase in technical change – in 31 Chinese provinces over the period 2000–2010. It then investigates the connection between technical change and inflows of foreign direct investment (FDI). The results reveal that capital deepening – that is, investment in fixed capital – has been the most prominent source of labour productivity growth mainly in poorer provinces, while richer provinces have benefitted mostly from increase in technical change. Inflows of FDI are not associated with higher rates of productivity growth. Our results have implications for the sustainability of the current model of growth in China and the patterns of technological development.

Labour Productivity and Technology Gap in European Regions: A Frontier Approach

Building on the Kumar and Russell (2002) methodology, we propose a conditional frontier approach which allows singling out the role of technology gap in explaining labour productivity differences. We find convergence in labour productivity growth driven by capital accumulation and technical change in 211 European regions in 18 countries over the period 1995‐2007. In lagging behind regions productivity growth is mainly driven by capital accumulation. The technology gap does not play a role in driving labour productivity growth and remains stable across regions in the considered period. Cohesion policy seems to be more effective in terms of fixed investment rather than on technological capabilities. Technology gap represents a source of unused potential productivity growth to be exploited in the future in order to substantiate economic convergence in Europe.