Cost Constrained Industry Inefficiency

Peyrache, Antonio (2015) Cost Constrained Industry Inefficiency. European Journal of Operational Research, 247 3: 996-1002. doi:10.1016/j.ejor.2015.06.067

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Author Peyrache, Antonio
Title Cost Constrained Industry Inefficiency
Journal name European Journal of Operational Research   Check publisher's open access policy
ISSN 0377-2217
Publication date 2015-01-01
Sub-type Article (original research)
DOI 10.1016/j.ejor.2015.06.067
Open Access Status File (Author Post-print)
Volume 247
Issue 3
Start page 996
End page 1002
Total pages 7
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Abstract 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.
Keyword Data envelopment analysis (DEA)
Industry inefficiency
Indirect directional distance function
Optimal configuration
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
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Created: Fri, 16 Dec 2016, 22:02:51 EST by Anthony Yeates on behalf of Learning and Research Services (UQ Library)