In medicine, the reasons for variation in treatment rates across hospitals serving similar patients are not well understood. Some interpret this variation as unwarranted, and push standardization of care as a way of reducing allocative inefficiency. However, an alternative interpretation is that hospitals with greater expertise in a treatment use it more because of their comparative advantage, ...

According to a frequently cited finding by Berger et al (1993), X-inefficiency contributes 20% to cost-inefficiency in western banks. Empirical studies of Chinese banks tend to place cost-inefficiency in the region of 50%. Such estimates would suggest that Chinese banks suffer from gross cost inefficiency. Using a nonparametric bootstrapping method, this study decomposes cost-inefficiency in Ch...

The influence of IT investments on organizational performance is revisited. Bounded rationality, organizational controls, and political forces may constrain optimal selection of inputs and appropriate substitution between inputs. For example, firms may not be able to attain an optimal level of IT by substituting IT for labor (for reasons such as pressure from the labor union). Besides estimatin...

It is well accepted that education is positively related to health. However, there is considerably less agreement as to the explanation of this relationship. I examine the strength of the empirical relationship between education and health for Australia and Canada. I find that education is indeed related to health and to a very similar extent in both countries. I discuss three important explana...

We study the impact of special interest politics on competition for a multinational between two countries. We show that whether a country will win this competition is determined by both economic factors, which include for which country foreign direct investment will bring more national welfare, and in which country the multinational will make more profits; and to what extent each country’s gove...

Many disputes between buyers and sellers concern product quality and whether a claim of poor product performance is covered by a warranty issued by the seller. We develop an analytical framework in which average product quality, buyer preferences, production and transaction costs, and the extent to which "true" quality can be observed by buyer and seller interact to determine warranties, produc...

Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in labs, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally ef...

The mathematical programming technique Data Envelopment Analysis is used to test the hypothesis of Averch and Johnson that utility regulation leads to overuse of capital. The regulated firm earns a return s greater than its cost of capital r, an implicit capital subsidy resulting in allocative inefficiency. Technical and Allocative inefficiency are based on Cost and Production Frontiers from 33...

This chapter is written for analysts and researchers who may use Data Envelopment Analysis (DEA) to statistically evaluate hypotheses about characteristics of production correspondences and factors affecting productivity. Contrary to some characterizations, it is shown that DEA is a full-fledged statistical methodology, based on the characterization of DMU efficiency as a stochastic variable. T...

We present the theoretical foundation for an adjustment cost technology that supports the intertemporal production decision making behavior using the directional distance function. Dynamic input efficiency measures are developed that can separate out the impact of variable and dynamic factors inefficiency levels. An approach to implement this theory in a nonparametric fashion is developed and a...