Dennis Fixler

Outsourcing and productivity growth in services

Abstract Outsourcing from manufacturing firms has fueled some of the service sectors rapid growth. We model the firms decision to outsource and show that increases in outsourcing may explain part of the increase in the divergence in productivity growth between manufacturing and services. We also analyze the implications of outsourcing for output and productivity growth of service industries. Our findings indicate that it has reduced service sector productivity in the short run. In contrast to earlier work on services (Baumol, W.J., 1967. American Economic Review 57, 415–426. Baumol, W.J., Blackman, A.B., Wolff, E.N., 1985. American Economic Review 75, 806–817), we project that productivity growth in services is likely to increase, once demand growth from manufacturing due to outsourcing subsides.

An index number approach to measuring bank efficiency: An application to mergers

Abstract The current wave of bank mergers has resulted in an interest in the measurement of consequent efficiencies. Previous studies have generally focused on the measurement of merger-induced cost efficiencies. In this paper, we turn to the production side and examine the change in relative productivity arising from bank mergers. After deriving our superlative multilateral productivity index, we compute the indexes for our entire sample of banks, approximately 2,000 banks in each of the years 1984–1988, and for a cohort of 160 banks that merged in 1986. We find that acquiring banks achieve no gains in efficiency, and this finding supports those of other studies. On the other hand, we find that our acquiring banks are consistently more productive than the sample as a whole. By implication, if mergers can be generally characterized as the acquisition by a relatively more productive bank of a relatively less productive bank, an empirically valid supposition, then industry performance should improve as a result of these mergers.

The productivity of the banking sector: integrating financial and production approaches to measuring financial service output

Measurement of output for services in general, and for financial services in particular, is a challenge. In the context of the national accounts, there is a significant component of financial services output for which payment is made implicitly through the spread between the asset interest earned and liability interest paid by financial institutions. Although it is reasonably clear that the total value of output of financial institutions includes the net interest income on financial asset and liability products (such as loans and deposits for banks) plus explicit service charges, there are unsettled issues concerning the correct allocation of the net interest component across business (intermediate consumers) versus households, government, and the rest of the world (final consumers). Recent revisions in national accounting rules for banking, together with the developments since the late 1970s in the microeconomic theory of financial firms and of household consumption of financial asset services (Diewert 1974, Barnett 1978, Donovan 1978, Hancock 1985) represent important developments in our understanding of the economics of and measurement possibilities for the banking sector. Central to, and an important contribuLtion of, this last line of literature has been the characterization of the prices of individual service products in terms of the Barnett (1978)-Donovan (1978) user cost of money. These user cost prices are simple functions of items, such as interest rates, that can be measured in financial market transactions. The principal practical economic measurement issues these developments have illuminated are twofold:

Incorporating ancillary measures of process and quality change into a superlative productivity index

One of the persistent problems plaguing the measurement of productivity and output is accounting for changes in product quality. A similar problem arises in attempting to explain shifts in a production function using information on changes in the characteristics of the production process itself. We consider these problems under a behavioral model in which the firm chooses a profit-maximizing bundle of input/output/process characteristics as well as the profit maximizing levels of input and output. This view of quality change is similar to the endogenous design index advocated by Triplett [1983] for industrial prices and the endogenous quality indexes analyzed by Pollak [1983] for consumer prices. We show how a price-characteristics locus can be used to adjust the Tornqvist output- and input-oriented multifactor productivity indexes of Caves, Christensen and Diewert [1982] for changes in input, output and process characteristics. To show the applicability of the methodology to services, we apply the results in the framework of the commercial banking measurement of Fixler [1988] to measure the impact of bank branching on multifactor productivity.

Measuring the Price of Research and Development Output

We construct a price index for the scientific R&D services industry, a significant producer of R&D in the United States. Unlike most previous R&D price indexes, our index is not based on input costs but rather on measures of R&D sales. Consequently, unlike input‐cost price indexes, our output‐based index is able to account for changes in productivity and markups in the scientific R&D services industry. We compute that scientific R&D services prices increased, on average, by 7.14 percent at an annual rate from 1987 to 2006. Using our index, we find that real revenues grew at an annual average rate of 2.85 percent. We then propose using our index, in combination with an input‐cost price index, to deflate total R&D nominal expenditures. We find that real total U.S. R&D expenditures grew at an average annual rate of 1.42 percent from 1987 to 2006.

Problems with the measurement of banking services in a national accounting framework

The paper considers some of the problems associated with the indirectly measured components of financial service outputs in the System of National Accounts (SNA), termed FISIM (Financial Intermediation Services Indirectly Measured). The paper utilizes a user cost and supplier benefit approach to the determination of the value of various financial services in the banking sector. The present paper also attempts to integrate the balance sheet accounts in the SNA with the usual flow accounts. An empirical example of various nominal output concepts that could be applied to the U.S. commercial banking sector is presented.

A Consistent Data Series to Evaluate Growth and Inequality in the National Accounts

Recent headlines frequently refer to rising inequality and its implication on economic growth and social welfare. Addressing the latter is difficult and requires more than simply looking at GDP, as Kuznets long ago pointed out. In this paper we focus on the importance of the income measure underlying the inequality measure when examining the relationship between GDP growth and inequality. We create a mapping using Census Bureau household survey data and Bureau of Labor Statistics (BLS) consumer expenditure data to create distributional measures of the Bureau of Economic Analysis (BEA) personal income. We show that for the period 2000-2012, inequality using personal income is substantively lower than inequality measured using Census Bureau money income, and the trends in both inequality and median income are different. This demonstrates the importance of using a measure a national accounts based measure of income when examining the relationships between inequality and growth.

Firm behavior and the externalities of technological leadership

Abstract A simple two firm model in which technological knowledge lies in an existing products attribute is analyzed. Accordingly, the technologically leading firm, the firm whose current product is more advanced, produces a knowledge externality. The technologically less advanced firm may take advantage of the externality, by learning the technology and embarking on its own development plan. If the follower instead just imitates the leaders product, the externality is likely to have an adverse effect on the imitator, reflecting the notion that a larger technological gap makes imitation more difficult. Comparative statistics experiments reveal among other things that greater initial technological gaps encourage technological progress if the follower imitates. As a result, the introduction of a patent system in this case would inhibit technological progress.