Abstract
This contribution investigates the efficiency of water suppliers in rural areas of East and West Germany. A non-radial measure of input specific allocative inefficiency is used to reduce the distributional dependency with respect to the inefficiency parameters. It is based on the demand system of a flexible cost function for the variable inputs labour, energy and chemicals modelled by applying a modified symmetric generalized McFadden functional form. Concavity restrictions, as required by economic theory, are imposed. The analysis reveals that efforts towards increasing suppliers’ allocative efficiency should focus on the relatively inefficient usage of the input chemicals. The input specific allocative model specification was found to be superior to the overall allocative specification.
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Notes
The problem of specifying an estimable input system that incorporates both technical and allocative inefficiency as well as the satisfactorily derivation of the relationship between allocative inefficiency in the input demand equations and economic inefficiency in the cost function has come to be known as the ‘Greene problem’ (see e.g. Kumbhakar, 1997).
Opting for empirical results with a very high significance one probably would have estimated an error components model by applying a translog functional form and using an easy to handle ‘black box’ estimation tool as e.g. FRONTIER provides.
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Sauer, J., Frohberg, K. Allocative efficiency of rural water supply – a globally flexible SGM cost frontier. J Prod Anal 27, 31–40 (2007). https://doi.org/10.1007/s11123-006-0024-4
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DOI: https://doi.org/10.1007/s11123-006-0024-4