Suthathip Yaisawarng

Accounting for environmental effects and statistical noise in data envelopment analysis

In this paper we propose a new technique for incorporating environmental effects and statistical noise into a producer performance evaluation based on data envelopment analysis (DEA). The technique involves a three-stage analysis. In the first stage, DEA is applied to outputs and inputs only, to obtain initial measures of producer performance. In the second stage, stochastic frontier analysis (SFA) is used to regress first stage performance measures against a set of environmental variables. This provides, for each input or output (depending on the orientation of the first stage DEA model), a three-way decomposition of the variation in performance into a part attributable to environmental effects, a part attributable to managerial inefficiency, and a part attributable to statistical noise. In the third stage, either inputs or outputs (again depending on the orientation of the first stage DEA model) are adjusted to account for the impact of the environmental effects and the statistical noise uncovered in the second stage, and DEA is used to re-evaluate producer performance. Throughout the analysis emphasis is placed on slacks, rather than on radial efficiency scores, as appropriate measures of producer performance. An application to nursing homes is provided to illustrate the power of the three-stage methodology.

Incorporating the Operating Environment Into a Nonparametric Measure of Technical Efficiency

The ability of a production unit to transform inputs into outputs is influenced by its technical efficiency and external operating environment. This paper introduces a nonparametric, linear programming, frontier procedure for obtaining a measure of managerial efficiency that controls for exogenous features of the operating environment. The approach also provides statistical tests of the effects of external conditions on the efficient use of each individual input (for an input oriented model) or for each individual output (for an output oriented model). The procedure is illustrated for a sample of nursing homes.

THE EFFECTS OF SULFUR DIOXIDE CONTROLS ON PRODUCTIVITY CHANGE IN THE U.S. ELECTRIC POWER INDUSTRY

Data envelopment analysis is used to compute a cumulative Malmquist input-based productivity index for coal-burning plants in the U.S. electric generating industry in the 1980s. The authors account for inputs used to control sulfur emissions as well as emissions outputs, and decompose the index into changes in technical efficiency, changes in technology, and changes in scale efficiency. They find that productivity decreased from 1985 to each of their first three target years but grew in the 1985-89 comparison, and that 18.5 percent of their plants, and 27 percent of net generation, lie in the decreasing returns region of the production set. Copyright 1994 by MIT Press.

Economies of diversification in the banking industry : A frontier approach

Abstract This paper defines a new measure, economies of diversification, to examine the cost effect of product line expansion. This measure is a special case of expansion path subadditivity and contains economies of scope as a special case. A nonparametric frontier technique which isolates the effects of inefficiency and scale is used to measure economies of diversification. Applied to a set of 468 U.S. depository institutions operating in 1984, we find slight diseconomies of diversification. Diseconomies of diversification and inefficiency due to the overutilization of resources are found to be more important determinants of bank costs than is the failure to operate at optimal scale.

Output allocative and technical efficiency of banks

Abstract In this paper we calculate output allocative and technical efficiency for a sample of small banks operating in 1982. We do so by estimating a Shephard type output distance function as a deterministic frontier. In general we find that the banks in our sample are output inefficient.

The impact of mergers on credit union service provision

Abstract In this paper we conduct an empirical exercise in which we attempt to provide answers to three questions concerning credit union mergers: (i) do members of acquiring credit unions benefit from mergers?; (ii) do members of acquired credit unions benefit from mergers?; and (iii) what are the characteristics of relatively successful, and relatively unsuccessful, mergers? Our empirical exercise is based on annual samples of nearly 6000 credit unions, including nearly 300 merger participants, during the 1988–1995 period. We find member service provision to have improved in acquired credit unions, and to have been unchanged in acquiring credit unions. We also provide three separate analyses, from three different perspectives, of the role of various characteristics of merging credit unions in determining the success of mergers.

Productivity growth in Illinois electric utilities

Abstract The purpose of this paper is to study productivity growth in Illinois electric utilities. We develop an input based Malmquist productivity index which makes use of Shephards input distance functions. Our Malmquist productivity index does not require that firms be revenue maximizers or cost minimizers or that information be available on input prices. Moreover, our productivity index accounts for changes in technical efficiency as well as changes in the frontier technology. Linear programming techniques are used to calculate the Malmquist productivity index for a sample of 19 coal-fired steam electric generating plants in Illinois during 1975–1981. On average, rates of productivity growth are relatively stable but statistically significant productivity slowdown is found for the period of 1976–1977. The major contribution to this productivity slowdown is due to technological regress in that period. At the plant-specific level, we found that there are considerable variations in changes in both efficiency and technology and that efficiency change plays a major role in productivity growth. Our results suggest that neglecting technical efficiency in the analysis of productivity growth may lead to inappropriate conclusions.

Performance Measurement in Government Service Provision: The Case of Police Services in New South Wales

The NSW Government is implementing a financial framework which is designed to encourage government service providers to become more efficient and effective. NSW Treasury is using Data Envelopment Analysis (DEA) to measure the efficiency of major government service providers, such as police, courts and hospitals. This paper outlines the progress in implementing the new financial framework and illustrates the way NSW Treasury will use DEA to help improve the efficiency of government service providers by describing an analysis of the NSW Police Service. The results suggest that NSW police patrols (local police districts) could, on average, reduce input usage by 13.5 percent through better management, and by 6 percent if the patrols could be restructured to achieve the optimal scale. Results also indicate that differences in operating environments, such as location and socioeconomic factors, do not have a significant influence upon the efficiency of police patrols.

Sensitivity and dimensionality tests of DEA efficiency scores

Abstract Extending Hughes and Yaisawarng [J.L.T. Blank (Ed.), Public Provision and Performance: Contributions from Efficiency and Productivity Measurement, Elsevier Science B.V., The Netherlands, p. 277], this paper addresses issues of dimensionality for enhancing the credibility of data envelopment analysis (DEA) results in practical applications and assisting practitioners in making an appropriate selection of variables for a DEA model. The paper develops a structured approach to testing whether changing the number of model variables for a fixed sample size affects DEA results. Using a simulation method, the paper tests whether a calculated DEA efficiency score reflects the dimension of the model or the existence of inefficiency. An empirical illustration is included.

Measuring Economies of Diversification: A Frontier Approach

The purpose of this article is to improve the statistical analysis of multiproduct-firm behavior. Specifically, we are interested in modeling and estimating multiproduct technology focusing on size and product-line variation. Thus we offer a new empirical technique that can be used to directly analyze issues such as subadditivity, expansion-path subadditivity, economies of scope, and economies of diversification. Although applied papers employ a wide variety of theoretical multiproduct cost concepts, previous work uses nonfrontier estimation techniques. We show how to introduce frontier approaches to multiproduct cost analysis that can be applied to any of these concepts and improve the statistical analysis. Specifically, we introduce an empirical test using frontier techniques that allows for direct measures of economies of diversification at the firm-specific level.