‘Comparison of Economic Efficiency Estimation Methods: Parametric and Non-parametric Techniques’

Tamkang University, T’ai-pei, Taipei, Taiwan
Manchester School (Impact Factor: 0.26). 09/2002; 70(5):682-709. DOI: 10.1111/1467-9957.00320
Source: RePEc


This paper employs a wide range of parametric and non-parametric cost frontiers' efficiency estimation methods to estimate economic efficiency and economies of scale, using the same panel data of 22 Taiwanese commercial banks over the period 1982-1997. According to our empirical implementation, the two methodologies yield similar average efficiency estimates, yet they come to very dissimilar results pertaining to the efficiency rankings, the stability of measured efficiency over time, the consistency between frontier efficiency and conventional performance measures, and the estimates of scale economies. Thus, the choice of an estimation approach can result in very different conclusions and policy implications regarding cost efficiencies and cost economies. These findings are not meaningless to the extent that they are advisable in making policy decisions and evaluations that rely on multiple techniques and specifications. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester

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    • "For example, the average efficiency scores obtained by DEA and SFA are similar in studies by Huang and Wang (2002) and Weill (2004), but dissimilar in studies by Dong, Hamilton, and Tippett (2014) andDelis et al. (2009). The consistency in efficiency score rankings obtained by SFA and DEA are moderate in the study by Dong, Hamilton, and Tippett (2014), but low in the studies byHuang and Wang (2002)and Weill (2004). The efficiency distribution and the inefficiency source are remarkably similar in a study byWadud and White (2000). "
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    ABSTRACT: This study examines the cost efficiency of Vietnamese banks from 2000 to 2014 in the first stage, and the selection and dynamic effects of two governance reforms, foreign partial acquisition and listing on the stock exchange, on the efficiency in the second stage. Empirical results from the two-stage Stochastic Frontier Analysis (SFA) are highly consistent with those from the two-stage Data Envelopment Analysis (DEA) . Specifically, the first-stage efficiency estimation indicates that the cost efficiency shows a slightly upward trend over the period 2000–2014, with the cost efficiency score being 0.93 and state-owned banks outperforming joint-stock banks (JSBs). The mixed process seemingly unrelated regression estimator which controls the potential endogeneity of public listing and foreign acquisition in the second stage shows that selection effects occur in the Vietnamese banking system: banks selected by the strategic foreign investors for partial acquisition and banks selected for public listing are more cost-efficient than those not selected. The short-term and long-term dynamic effects of foreign partial acquisition are documented: the cost efficiency of the Vietnamese banks post-partial acquisition is lower than prior-partial acquisition, and it experiences a decreasing trend since partial acquisition. However, the short-term and long-term dynamic effects of public listing are not evidenced: the cost efficiency of the banks after public listing is not statistically different from that before public listing, and it also reveals an unclear trend since public listing.
    Full-text · Article · Jan 2016 · Applied Economics
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    • "Vol 4, No.10, 2012 60 effects of the decommissioning program ( Lindebo et al., 2007). Due to the key role of efficiency and its determinant factors in fishing management and a decommissioning program, there is a growing interest in the measurement of technical efficiency and the factors determining it at fishing fleet level (Esmaeili, 2006; Garcia del Hoyo et al., 2004; Hjalmarsson et al., 1996; Huang & Wang, 2002; Idda et al., 2009; Kirkley & Squires, 1999; Kirkley et al., 2002; Lindebo et al., 2007; Maravelias & Tsitsika, 2008; Pascoe et al., 2001; Reid et al., 2003; Reinhard et al., 2000; Squires et al., 2003; Tingley et al., 2005; Vestergaard et al., 2003). "

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    • "found very high rank-order correlations between DEA and SFA, whereas Ferrier and Lovell (1990) found rank-order correlation of only 0.02 (not significantly different from zero). Also, in the most recent study, Huang and Wang (2002), using a panel of Taiwanese commercial banks, report that parametric and non-parametric methods are generally contradictory in ranking the sample banks based on their estimated efficiency scores. In contrast, Eisenbeis et al. (1997) found that while the calculated programming inefficiency scores derived from the DEA approach are two to three times larger than those estimated using a 5 For a detailed discussion of the pros and cons of each methodology see Coelli et al. (2005). "
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    ABSTRACT: The objective of this article is 2-fold. First, it provides an empirical assessment of the cost and profit stochastic frontiers based on a panel dataset of Greek commercial banks over the period 1993 to 2005. Second, on the basis of the same sample, it also compares the most widely used parametric and nonparametric techniques to cost efficiency measurement, namely, the Stochastic Frontier Approach and Data Envelopment Analysis. The results suggest greater similarities between the predictions of cost and profit efficiency methods than between parametric and nonparametric techniques. Such evidence is new in the literature and calls for a more technically level playing field for estimating bank efficiency.
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