Abstracts of Published Papers
Adjustment of Inputs and Measurement of Technical Efficiency:
A Dynamic Panel Data Analysis of the Egyptian Manufacturing Sectors
The purpose of this paper is to construct a dynamic stochastic production frontier incorporating the sluggish adjustment of inputs, to measure the speed of adjustment of output, and to compare the technical efficiency estimates from this dynamic model to those from a static model. By assuming instantaneous adjustment of all inputs, a static model may underestimate technical efficiency of a production unit in the short-run. However, in this paper I show that under the assumption of similar adjustment speed for all inputs, a linear partial adjustment scheme for output characterizes the dynamic production frontier. The dynamic frontier with time-invariant technical efficiency is estimated using the system GMM (generalized method of moments) estimator. Applying the model and estimation method on a panel dataset spanning nine years of data on private manufacturing establishments in Egypt, I find that 1) the speed of adjustment of output is significantly lower than unity, 2) the static model underestimates technical efficiency by 4.5 percentage points on average, and 3) the ranking of production units based on their technical efficiency measures changes when the lagged adjustment process of inputs is taken into account.
Choice, Internal Consistency and Rationality
with Prasanta K. Pattanaik and Yongsheng Xu
(Economics and Philosophy)
Classical rational choice theory is built on several important internal consistency conditions. In recent years, the reasonableness of those internal consistency conditions has been questioned and criticized, and several responses to accommodate such criticisms have been proposed in the literature. This paper develops a general framework to accommodate the issues raised by criticisms of classical rational choice theory, and examines the broad impact of these criticisms on rational choice theory from both a normative and positive point of view.
Financial Reforms and Technical Efficiency in Indian Commercial Banking:
A Generalized Stochastic Frontier Analysis
with Sudeshna Pal
(Review of Financial Economics)
In this study we estimate technical efficiency of Indian commercial banks from 1989 - 2009 using a multiple-output generalized stochastic production frontier, and analyze the effects of financial sector reforms on measured efficiency. This generalized technique estimates technical efficiency in the presence of multiple outputs, filling a gap in the existing literature. Our results show that Indian commercial banks were operating with 64% efficiency on average during the sample period and that efficiency declined in both public and private banks during most parts of the post-reform period. The capital adequacy ratios negatively influenced efficiency while the number of branches had no significant effect on bank efficiency. Financial sector reforms, however, have had mixed results on technical efficiency. The initial phase of reform had positive impact on technical efficiency while the later phases adversely affected technical efficiency of commercial banks. Throughout the sample period, public sector banks show higher efficiency levels compared to private sector and foreign banks.
Adjustment of Inputs and Measurement of Time-varying Technical Efficiency: A Dynamic Panel Data Analysis
(Journal of Quantitative Economics)
This paper provides estimation method to measure technical efficiency of production units and the speed of adjustment of output, both varying with time, from a dynamic stochastic production frontier that incorporates the sluggish adjustment of inputs. Using a panel dataset on private manufacturing establishments in Egypt I find that the speed of adjustment of output is lower than unity in every period and slowly increases over time. When compared to the results from the static model, the dynamic model is found to produce higher estimates of technical efficiency on average, captures more variation in the time pattern of technical efficiency, and provides a different ranking of production units.
Abstracts of Completed Papers
Median-based Rules for Decision Making under Complete Ignorance
This paper characterizes a class of rules for decision-making when an agent knows the possible states of the world and the outcome of each of her actions for each state, but does not have any information about the probabilities with which each state occurs. The existing literature in this framework has mainly considered ‘max’-based or ‘min’-based rules and their variants that reflect rather extreme forms of optimism or pessimism on the part of an agent. In contrast, this paper focuses on the median outcome(s) and characterizes a class of decision-making rules that reflects a more ‘balanced’ attitude of the agent.
Technical Efficiency of Rice Farming and its Determinants in a Generalized Stochastic Frontier Framework:
A Case Study from Assam, India
with Raju Mandal
This study uses a generalized stochastic frontier framework to model a multiple-output rice production system and analyses farm-level technical inefficiency of rice farming in Assam, India. Primary data for this study was collected in 2009-2010 from 310 farm-households in four non-contiguous districts of Dhubri, Morigaon, Dibrugarh, and Cachar that are located in different agro-climatic regions of Assam. Based on a Cobb-Douglas production function for multiple rice varieties, we simultaneously estimate the Generalized Stochastic Production Frontier and examine effects of exogenous factors on farm-level technical inefficiency. We find that the average technical inefficiency of farms is 8.5% in our sample. Further, inefficiency is lower in the frequently flood prone areas, and availability of government support helps reduce such inefficiency as well. However, technical efficiency is higher for the Muslim farm-households, and it decreases with greater land fragmentation. We also find that the use of primitive technology like bullock reduces technical efficiency of rice farming.
What Makes Rural Households Use Traditional Fuel? Empirical Evidence from India
with Daisy Das
This paper investigates effects of different types of cooking fuels used on the technical efficiency of household meal production in rural India. Rural households in India use either traditional fuels like firewood, dung, crop residue, and coal or use modern fuels like liquefied petroleum gas (LPG) and kerosene, or use a combination of both traditional and modern fuels for cooking. Using the stochastic frontier method, this paper formulates a production frontier model for household meal production and estimates influence of different types of cooking fuel and other household level characteristics on technical efficiency of such production. We use a representative sample of 3880 rural households from the India Human Development Survey, 2008. Our results indicate that efficiency of meal preparation is significantly higher if households use traditional or combination of both traditional and modern fuels than if they use modern fuels alone. Thus, results of this paper shed light on reasons other than cost, behind the overwhelming popularity of traditional fuels in spite of their adverse health and environmental effects. This result is likely to be driven by the capacity constraint imposed by LPG and kerosene burners in cooking large quantity of food at a time. Though our study identifies provision of traditional fuel as a viable option for reducing energy poverty in rural India, it also recognizes the need for developing and supplying more efficient cooking stoves for promoting higher use of clean energy sources. This study, thus recommends extensive policy of afforestation and provision of biogas plant and biomass gasifiers along with aggressive measures to supply improved cook stoves that use modern fuel. Our results also suggest policy intervention in improving women’s education, household income, provision of ration card, and providing government support in acquiring improved cooking stoves for increasing efficiency of meal production at the household level.