Mika Goto

Measurement of Dynamic Efficiency in Production: An Application of Data Envelopment Analysis to Japanese Electric Utilities

The purpose of this paper is to measure productive efficiencies when a firm employs quasi-fixed inputs that cannot be instantaneously adjusted to their optimal levels. To this end, data envelopment analysis (DEA) is extended to a dynamic framework so that investment behavior can be modelled with the efficient production frontier. Based on the work of Nemoto and Goto (1999), we show how the efficiencies of quasi-fixed inputs and their adjustment processes are evaluated. An application to Japanese electric utilities over the 1981–1995 period delivers empirically plausible results and proves the usefulness of the procedure.

Dynamic data envelopment analysis: modeling intertemporal behavior of a firm in the presence of productive inefficiencies

Abstract This study extends data envelopment analysis (DEA) to a dynamic framework. Our dynamic DEA not only provides a measure of dynamic productive efficiency, but can also be used as a nonparametric alternative to the econometric modeling of the intertemporal behavior of a firm.

Data envelopment analysis for environmental assessment: Comparison between public and private ownership in petroleum industry

Environmental assessment recently becomes a major policy issue in the world. This study discusses how to apply Data Envelopment Analysis (DEA) for environmental assessment. An important feature of the DEA environmental assessment is that it needs to classify outputs into desirable (good) and undesirable (bad) outputs because private and public entities often produce not only desirable outputs but also undesirable outputs as a result of their production activities. This study proposes the three types of unification for DEA environmental assessment by using non-radial DEA models. The first unification considers both an increase and a decrease in the input vector along with a decrease in the direction vector of undesirable outputs. This type of unification measures “unified efficiency”. The second unification considers a decrease in an input vector along with a decrease in the vector of undesirable outputs. This type of unification is referred to as “natural disposability” and measures “unified efficiency under natural disposability”. The third unification considers an increase in an input vector but a decrease in the vector of undesirable outputs. This type of unification is referred to as “managerial disposability” and measures “unified efficiency under managerial disposability”. All the unifications increase the vector of desirable outputs. To document their practical implications, this study has applied the proposed approach to compare the performance of national oil firms with that of international oil firms. This study identifies two important findings on the petroleum industry. One of the two findings is that national oil companies under public ownership outperform international oil companies under private ownership in terms of unified (operational and environmental) efficiency and unified efficiency under natural disposability. However, the performance of international oil companies exhibits an increasing trend in unified efficiency. The other finding is that national oil companies need to satisfy the environmental standard of its own country while international oil companies need to satisfy the international standard that is more restricted than the national standards. As a consequence, international oil companies outperform national oil companies in terms of unified efficiency under managerial disposability.

Comparison of Productive and Cost Efficiencies among Japanese and US Electric Utilities

Using Data Envelopment Analysis (DEA), this article measures both overall cost efficiency and technical efficiency to compare bilaterally between Japanese and US electric utilities in the annual periods from 1984 to 1993. Nine Japanese and 14 US vertically integrated investor-owned electric utilities are examined in this study. An intertemporal efficiency index, measuring the intertemporal shift of an efficiency frontier, is measured for the examination of productivity improvement over a time period. Country average overall cost efficiency indices are also proposed and broken down into technical, scale and allocative efficiencies in terms of cross-sectional and time-series performance analyses. The main empirical results include: (1) the overall cost efficiency of Japanese electric utilities was consistently higher than that of US electric utilities from 1984 to 1993; (2) Japanese utilities were more efficient than US utilities in terms of technical, allocative and scale efficiencies; (3) allocative inefficiency was a main source of overall cost inefficiency for the Japanese utilities. Our empirical results indicate that high electricity tariffs are mainly due to an excessive amount of capital investment, a source of allocative inefficiency, found in Japanese utilities. This finding may imply that electricity prices of Japanese utilities can be reduced by creating a free market where the utilities can increase inexpensive power purchase from independent power producers through competitive bidding, and/or they procure inexpensive equipments.

Measurement of Returns to Scale and Damages to Scale for DEA-based operational and environmental assessment: How to manage desirable (good) and undesirable (bad) outputs?

Environmental assessment is increasingly important in preventing various types of pollutions. Data Envelopment Analysis (DEA) has been long used as an operational performance measure, but we have insufficiently explored the use of DEA for environmental assessment. This study explores a new use of DEA for the environmental assessment in which outputs are classified into desirable (good) and undesirable (bad) outputs. Such an output separation is important in the DEA-based environmental assessment. This study extends the use of DEA to the measurement of both Returns to Scale (RTS) for desirable outputs and Damages to Scale (DTS) for undesirable outputs. A Range-Adjusted Measure (RAM) is used as a DEA model for this study because the non-radial model can easily combine the two types of outputs in a unified treatment. All the mathematical features regarding the RAM-based RTS/DTS measurement are first discussed from the operational and environmental performance in a separate treatment. Then, this study combines the two performance measures as a unified measure. The RAM-based RTS/DTS is mathematically explored from the unified measure for operational and environmental performance.

Slack-adjusted DEA for time series analysis: Performance measurement of Japanese electric power generation industry in 1984-1993

Abstract Using a new slack-adjusted data envelopment analysis (SA-DEA) model which explicitly incorporates an influence of slacks into its efficiency measurement, this study discusses a use of various efficiencies and index measures for DEA dynamic analysis. An analytical formulation to determine the type of return to scale (RTS) is proposed for the new DEA model. This paper mathematically discusses when multiple solutions occur on RTS and how to deal with such a difficulty. As an important case study, this paper applies the proposed DEA approach to examine the performance of Japanese electric power generation companies from 1984 to 1993. Two policy implications are suggested for guiding the Japanese electric power industry.

Methodological comparison between two unified (operational and environmental) efficiency measurements for environmental assessment

Environmental assessment recently becomes a very large-scale policy issue among corporate leaders, environmental researchers and individuals who are interested in environmental protection in the world. This study discusses how to apply Data Environment Analysis (DEA) for environmental assessment. DEA has been long utilized to measure operational performance in private and public sectors. However, previous DEA research has documented a limited use of DEA on environmental assessment. A unique feature of DEA-based environmental assessment is that it needs to classify outputs into desirable (good) and undesirable (bad) outputs because private and public entities often produce not only desirable outputs but also undesirable outputs as a result of their production activities. A methodological difficulty associated with the previous DEA-based environmental assessment is how to combine operational performance on desirable outputs and environmental performance on undesirable outputs in a unified treatment. This study proposes two types of unification for DEA-based environmental assessment within a non-radial DEA framework. Then, this study compares the two types of unification from economic and mathematical perspectives of environmental assessment.

Measurement of a linkage among environmental, operational, and financial performance in Japanese manufacturing firms: A use of Data Envelopment Analysis with strong complementary slackness condition

This study investigates a linkage among environmental, operational and financial performance in Japanese manufacturing industry. All manufacturing firms examined in this study are listed in Tokyo stock exchange market. We use DEA (Data Envelopment Analysis) as an evaluation methodology. This study finds that large firms have managerial capabilities to improve their operational and environmental performance. The improvement leads to the enhancement of their financial performance. However, we cannot find such a business linkage in small and medium-sized firms. They improve their operational performance and then direct themselves toward the improvement of their environmental performance. Their environmental performance is, not the first priority, the second priority for the small and medium-sized firms even though Japanese government is currently making a policy pressure on all manufacturing firms to pay attention to various environmental issues related to the global warming and climate change. The environmental protection policy is effective on only large Japanese manufacturing firms that have technological and financial capabilities for environmental protection.

Technological Externalities and Economies of Vertical Integration in the Electric Utility Industry

Abstract This paper investigates economies of vertical integration of the electric utility industry, focusing on the technological externality between the generation and transmission–distribution stages. For this purpose, a shadow cost function of the symmetric generalized McFadden form is estimated using panel data on the transmission–distribution stage of nine Japanese electric utility firms. The results show that there exist the technological externality effects of generation facilities on the cost of the transmission–distribution stage, suggesting economies of vertical integration.

Methodological comparison between DEA (data envelopment analysis) and DEA–DA (discriminant analysis) from the perspective of bankruptcy assessment

This study compares DEA (data envelopment analysis) with DEA-DA (discriminant analysis) in terms of bankruptcy assessment. Recently, many DEA researchers propose a use of DEA as a quick-and-easy tool to assess corporate bankruptcy. Meanwhile, other DEA researchers discuss a use of DEA-DA for bankruptcy-based financial analysis. The two groups are very different from the conventional use of DEA because we have long applied DEA to the measurement of operational performance, or productivity analysis. The two research groups open up a new application area (bankruptcy-based financial assessment) for DEA. This study discusses methodological strengths and weaknesses of DEA and DEA-DA from the perspective of corporate failure. The proposed comparative analysis has the three main criteria: (a) how to handle negative data in financial variables, (b) how to handle data imbalance between default and non-default firms, and (c) how to identify a failure process over time. This study finds that DEA is a managerial tool for the initial assessment of corporate failure and DEA is useful for busy corporate leaders and financial managers. In contrast, DEA-DA is useful for researchers and individuals who are interested in the detailed assessment of bankruptcy and its failure process in a time horizon.