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The cost of strikes in the Spanish mining sector: modelling an undesirable input with a distance function

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Abstract

In some contexts, firms have to deal with certain elements or factors that affect the production outcome but which are non-market in nature and therefore do not have a price. In this paper we propose a new use of a production economics tool, the input distance function, to empirically measure the effects of these factors. Although we suggest a general use of this methodology, it has been developed in the context of measuring the effects of labor disputes in a particular declining industry, that of Spanish coal mining. We have estimated an equation system comprising an input distance function and cost share equations to calculate the cost generated by strikes.

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Notes

  1. The interested reader in this specific case can consult Del Rosal (2000).

  2. Del Rosal and Fonseca (2001) show that a statistical relationship can be detected between labor unrest (measured in lost working days) and certain variables that can be considered as proxies for activity adjustment such as lost employment or pit closures.

  3. Leaving aside theoretical discussions like “efficient rent-seeking” and what could be called “the search for the lost rectangle”, there have been attempts to quantify the social waste due to rent-seeking behavior, sometimes using ad hoc measures (Laband and Sophocleus 1992, for instance) and at other times using econometric regressions to study the correlation between agents’ transfers and other explanatory variables “suggested by theory” (see, for instance, Laband and Sophocleus 1988; Lopez and Pagoulatos 1994; Lenway et al. 1996).

  4. In fact, the link between rent seeking and efficiency is not new. While it has not been developed, it has been suggested. This quotation from Tullock (1997, p. 152) can be illuminating: “... in many cases, as part of the lobbying activities, the company that seeks the special privilege is forced to engage in some kind of inefficient production method in order to conceal the privilege”.

  5. Using the methodology proposed we can also check whether labor rents exist or not, i.e., if there is a supra-competitive wage.

  6. Alternatively, a dual profit or revenue function could be considered. Given the aim of this paper we restrict our analysis to an input orientation.

  7. Coelli et al. (1998) provide a good introduction on this topic. Advanced treatment can be found in Färe and Primont (1995).

  8. For more details see Rodríguez-Alvarez and Lovell (2004).

  9. Note that, due to the definition of variable H, the homogeneity conditions have to be modified. The new conditions are: \({\beta_{L}+\beta_{M} =1; \beta_{LL}+\beta_{LH}+\beta_{HH}+\beta_{LM}+\beta_{HM}=0; \beta_{ML}+\beta_{MM}+\beta_{MH}=0; \rho_{YL}+\rho_{YM}+\rho_{YH}= 0; \xi_{HL}+\xi_{HM}+\xi_{HH}= 0; \eta_{KL}+\eta _{KM}+\eta_{KH}= 0; \Psi_{TL}+\Psi_{TM}+\Psi_{TH}=0.}\)

  10. For example, a mining accident will cause a stoppage of the production process, and the reduction of labor and materials will be the same, as long as the materials are used by the workers.

  11. The estimated input distance function is increasing in variable inputs and decreasing in the output for all observations. Note also that given we have only two inputs and given that we have imposed linear homogeneity, we are imposing that the input distance function is quasi-concave.

  12. To ensure consistency when aggregating the share equations, the coefficients a L and a M need to sum to zero. In our case, as we have only two inputs, a L  = − a M .

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Acknowledgments

The authors would like to thank Shawna Grosskopf and two anonymous referees for their detailed comments and suggestions on earlier versions of the paper. We are also indebted to Alan Wall for assistance in the manuscript preparation. Financial support was provided by the University of Oviedo (Grant IR-01-511-1).

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Authors and Affiliations

  1. Departamento de Economía, University of Oviedo, Avenida del Cristo, s/n, 33006, Oviedo, Spain

    Ana Rodríguez-Álvarez & José Baños-Pino

  2. Departamento de Economía Aplicada, University of Oviedo, Oviedo, Spain

    Ignacio del Rosal

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  1. Ana Rodríguez-Álvarez
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  2. Ignacio del Rosal
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  3. José Baños-Pino
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Correspondence to Ana Rodríguez-Álvarez.

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Rodríguez-Álvarez, A., Rosal, I.d. & Baños-Pino, J. The cost of strikes in the Spanish mining sector: modelling an undesirable input with a distance function. J Prod Anal 27, 73–83 (2007). https://doi.org/10.1007/s11123-006-0023-5

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