Smith, ASJ and Wheat, PE (2011) Estimation of cost inefficiency in panel data models with firm specific and sub-company specific effects. Journal of Productivity Analysis, 37 (1). 27 - 40. ISSN 0895-562X
Abstract
This paper proposes a dual-level inefficiency model for analysing datasets with a sub-company structure, which permits firm inefficiency to be decomposed into two parts: a component that varies across different sub-companies within a firm (internal inefficiency); and a persistent component that applies across all sub-companies in the same firm (external inefficiency). We adapt the models developed by Kumbhakar and Hjalmarsson (J Appl Econom 10:33–47, 1995) and Kumbhakar and Heshmati (Am J Agric Econ 77:660–674, 1995), making the same distinction between persistent and residual inefficiency, but in our case across sub-companies comprising a firm, rather than over time. The proposed model is important in a regulatory context, where datasets with a sub-company structure are commonplace, and regulators are interested in identifying and eliminating both persistent and sub-company varying inefficiency. Further, as regulators often have to work with small cross-sections, the utilisation of sub-company data can be seen as an additional means of expanding cross-sectional datasets for efficiency estimation. Using an international dataset of rail infrastructure managers we demonstrate the possibility of separating firm inefficiency into its persistent and sub-company varying components. The empirical illustration highlights the danger that failure to allow for the dual-level nature of inefficiency may cause overall firm inefficiency to be underestimated.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Editors: |
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Copyright, Publisher and Additional Information: | (c) Springer Science+Business Media, LLC 2011. This is an author produced version of a paper published in Journal of Productivity Analysis. Uploaded in accordance with the publisher's self-archiving policy. The final publication is available at Springer via http://dx.doi.org/10.1007/s11123-011-0220-8 |
Keywords: | Stochastic frontier model; efficiency; sub-company data; panel data; C23; C81; L51; D24 |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Environment (Leeds) > Institute for Transport Studies (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 18 Feb 2015 15:58 |
Last Modified: | 24 Jan 2018 11:23 |
Published Version: | http://dx.doi.org/10.1007/s11123-011-0220-8 |
Status: | Published |
Publisher: | Springer Verlag |
Identification Number: | 10.1007/s11123-011-0220-8 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:82983 |