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The Econometric Approach to Efficiency Analysis

William H. Greene

in The Measurement of Productive Efficiency and Productivity Change

This chapter provides an overview of techniques for econometric analysis of technical (production) and economic (cost) efficiency. The stochastic frontier model of Aigner, Lovell, and Schmidt (1977) ... More

This chapter provides an overview of techniques for econometric analysis of technical (production) and economic (cost) efficiency. The stochastic frontier model of Aigner, Lovell, and Schmidt (1977) is now the standard econometric platform for this type of analysis. The underlying models and econometric techniques that have been used in studying technical inefficiency in the stochastic frontier framework are surveyed, and some of the recent developments in econometric methodology are presented. Applications that illustrate some of the computations are presented in the final section.Less

John Denis Sargan 1924–1996

David F. Hendry

in Proceedings of the British Academy, Volume 120, Biographical Memoirs of Fellows, II

Denis Sargan was the leading British econometrician of his generation, playing a central role in establishing the technical basis for modern time-series econometric analysis. In a distinguished ... More

Denis Sargan was the leading British econometrician of his generation, playing a central role in establishing the technical basis for modern time-series econometric analysis. In a distinguished career spanning more than forty years as a teacher, researcher, and practitioner, particularly during the period that he was Professor of Econometrics at the LSE, Denis transformed both the role of econometrics in the analysis of macroeconomic time series, and the teaching of econometrics.Less

Conclusion

Stephen Bazen

in Econometric Methods for Labour Economics

This chapter presents some concluding thoughts. The aim of this book has been to present the main econometric techniques used by labour economists. It aims to serve as a platform for adapting ... More

This chapter presents some concluding thoughts. The aim of this book has been to present the main econometric techniques used by labour economists. It aims to serve as a platform for adapting material already encountered in econometrics classes and textbooks to the empirical analysis of labour market phenomena. There is no conventional wisdom on how to conduct empirical analysis in labour economics. Several approaches coexist, running from structural models with very tight links to economic theory, to so-called ‘model-free’ approaches based on emulating the experimental approach. In practice, most studies in empirical labour economics lie somewhere in between these two benchmarks, and consist of estimating models which are loosely based on theoretical reasoning and specified in a flexible manner so that the data can ‘talk’.Less

Migration in Germany 1870–1913: A Statistical Analysis

OLIVER GRANT

in Migration and Inequality in Germany 1870-1913

This chapter presents the examination of migration statistics using modern econometric analysis. The results show that there was a period of intense rural-urban migration in the 1870s and 1880s, and ... More

This chapter presents the examination of migration statistics using modern econometric analysis. The results show that there was a period of intense rural-urban migration in the 1870s and 1880s, and this was affected by conditions within agriculture relative to those in industry, and by changes within agriculture. Agricultural transformation brought about the release of surplus labour onto urban labour markets. After a period of transition in the 1890s, the pattern of migration changed to one which was no longer dominated by the movement of surplus rural labour. The ending of this ‘labour surplus’ phase created conditions which were favourable to the creation of a modern mature industrial society, and to a process of social and economic reconciliation which could have led to the emergence of democratic institutions and a reduction in social conflict.Less

Landownership Inequality and the Income Distribution Consequences of Economic Growth

Michael Carter

in Inequality Growth and Poverty in an Era of Liberalization and Globalization

Addresses the question of whether agrarian structure (land ownership inequality) can explain increasing income inequality. The second section begins the chapter with a conventional income inequality ... More

Addresses the question of whether agrarian structure (land ownership inequality) can explain increasing income inequality. The second section begins the chapter with a conventional income inequality accounting or Gini decomposition framework, which, among other things, provides a convenient vehicle to review the economic theory of the inverted‐U, the assumptions under which it could be expected to hold, and, by implication, the likely reasons for its failure to hold in the contemporary world. This framework also makes it clear that the direct explanatory power of land ownership inequality on income inequality should diminish with the reduction in the share of national income generated in the agricultural sector, and should thus be diminishing rapidly over time in those countries of Asia and Latin America where the weight of the agricultural sector in the overall economy has fallen off dramatically. The third section develops an econometric approach for answering this empirical question, in which flexible estimation methods based on random coefficients or mixed effects models are employed to test for the effect of agrarian structure on income inequality. The last section summarizes the chapter by considering the implications for policy both inside and outside the agricultural sector.Less

The Two OPEC Recessions (1973–5 and 1979–82)

Christopher Dow

in Major Recessions: Britain and the World 1920-1995

The recession of 1973–75 was the first occasion since the war when total output fell absolutely, and it was followed six years later by the recession of 1979–82, when output again showed an absolute ... More

The recession of 1973–75 was the first occasion since the war when total output fell absolutely, and it was followed six years later by the recession of 1979–82, when output again showed an absolute fall. The question that this book started out to answer in Ch. 1 was why 1973 was so crucial a turning point: to determine that, one has to look at all the major fluctuations of the economy since 1920, although the recession of 1973–75 and the one that followed in 1979–82 retain a central interest. Each of these two recessions coincided with one of the vast jumps in the world price of oil, known as OPECs I and II, and it is argued that these played a large role in their genesis; although in each case there were also other causes; these two recessions therefore called here the OPEC recessions––there are some important differences between them but also important similarities, and they were both very different from the major recessions that came before the war and the next recession. They are therefore discussed together in this chapter, which takes the story to 1982––the year when the economy can be considered to have emerged from the second of the two recessions. Section 8.1 discusses the background issues––the political developments and the origin of oil price shocks with reference to the UK, Sect. 8.2 seeks to explain the fluctuations of UK demand and output in the period, starting with the 1972 boom––which is seen as one cause of the recession that followed, and Sect. 8.3 considers the general lessons to be derived from the decade; Appendix A8 presents an econometric analysis of the inflationary surges of the 1970s.Less

Income Distribution Changes and Their Impact in the Post-Second World War Period

Giovanni Andrea Cornia, Tony Addison, and Sampsa Kiiski

in Inequality Growth and Poverty in an Era of Liberalization and Globalization

Analyses the trends in within‐country inequality during the post‐Second World War period, with particular attention to the last 20 years, on the basis of a review of the relevant literature and of an ... More

Analyses the trends in within‐country inequality during the post‐Second World War period, with particular attention to the last 20 years, on the basis of a review of the relevant literature and of an econometric analysis of inequality trends in 73 countries accounting for 80% of the world's population and 91% of world gross domestic product–purchasing power parities (GDP–PPP). Suggests that the last two decades (the 1980s and 1990s) have been characterized by a surge in within‐country inequality in about two‐thirds of the developing, developed, and transitional nations analysed. Also suggests that in those countries where the upsurge in inequality was sizeable or where inequality rose from already high levels, growth, and poverty alleviation slowed down perceptibly. While this trend towards higher inequality differs substantially across countries in its extent, timing, and specific causes, it marks a clear departure from that observed during the first 30 years of the post‐Second Word War period during which, with the exception of Latin America and parts of sub‐Saharan Africa, a widespread move towards greater egalitarianism was noted in most of the socialist, developing, and industrialized economies.Less

Duration Models

Stephen Bazen

in Econometric Methods for Labour Economics

In many countries, the rise and persistence of unemployment from the 1970s onwards led to labour economists paying special attention to the duration of a spell of unemployment. The econometric ... More

In many countries, the rise and persistence of unemployment from the 1970s onwards led to labour economists paying special attention to the duration of a spell of unemployment. The econometric analysis of spell durations is based on methods developed in other disciplines (especially biometrics and the analysis of survival times after surgery or medical treatment). Furthermore, while the focus was initially on unemployment duration, other issues in labour economics can be approached in a similar manner, such as job mobility, strike duration, and time out of the labour force for maternity leave. Essentially, the aim is to determine the factors that influence the length of a spell in a given state, and the likelihood of leaving that state for another. This chapter presents key elements in modelling durations relevant to empirical labour economics.Less

Introduction

Christopher Dow

in Major Recessions: Britain and the World 1920-1995

This chapter has two main parts. The first discusses the aims and methods of the study, and includes definitions of recessions and recoveries, and an account of the method of investigation used, ... More

This chapter has two main parts. The first discusses the aims and methods of the study, and includes definitions of recessions and recoveries, and an account of the method of investigation used, which is a combination of econometric analysis and evidence from case studies of successive recessions. The second gives a plan of the book and discusses its character.Less

Unit Root Inference

Luc Bauwens, Michel Lubrano, and Jean-François Richard

in Bayesian Inference in Dynamic Econometric Models

This chapter examines the application of the unit root hypothesis in econometric analysis, particularly in the Bayesian inference approach. It explains that testing for a unit root in a Bayesian ... More

This chapter examines the application of the unit root hypothesis in econometric analysis, particularly in the Bayesian inference approach. It explains that testing for a unit root in a Bayesian framework is one of the most controversial topics in the economic literature. This is because testing is one of the hot topics among classical and Bayesian statisticians and because the unit root hypothesis is a point hypothesis and Bayesians do not like testing a point hypothesis because it is not natural to compare an interval which receives a positive probability with a point null hypothesis of zero mass.Less

Heteroscedasticity and ARCH

Luc Bauwens, Michel Lubrano, and Jean-François Richard

in Bayesian Inference in Dynamic Econometric Models

This chapter examines the importance of heteroscedasticity and the autoregressive conditional heteroscedasticity (ARCH) model in econometric analysis, particularly in the Bayesian inference approach. ... More

This chapter examines the importance of heteroscedasticity and the autoregressive conditional heteroscedasticity (ARCH) model in econometric analysis, particularly in the Bayesian inference approach. It discusses the case of functional heteroscedasticity and proposes a general method for detecting heteroscedasticity. It explains that neglecting heteroscedasticity may result in a posterior distribution for the regression coefficients which is different from what it is when the heteroscedasticity is taken into account.Less

Non-Linear Time Series Models

Luc Bauwens, Michel Lubrano, and Jean-François Richard

in Bayesian Inference in Dynamic Econometric Models

This chapter examines non-linear time series models in relation to the Bayesian inference approach in econometric analysis. There are two types of models which are quite different for the treatment ... More

This chapter examines non-linear time series models in relation to the Bayesian inference approach in econometric analysis. There are two types of models which are quite different for the treatment of inference. The first class of models corresponds to models with a threshold while the second class has been advocated as a reasonable approximation to the disequilibrium models proposed in 1974 by Maddala and Nelson. This chapter also analyses the so-called one-market disequilibrium model.Less

Dynamic Factor Demand Models and Productivity Analysis

M. Ishaq Nadiri and Ingmar R. Prucha (eds)

in New Developments in Productivity Analysis

This chapter reviews developments in the econometric analysis of production, focusing on dynamic interrelated factor demand models. It examines models based on restrictive simplifying assumptions and ... More

This chapter reviews developments in the econometric analysis of production, focusing on dynamic interrelated factor demand models. It examines models based on restrictive simplifying assumptions and simple econometric specifications. It provides a Monte Carlo study showing the magnitude of the errors that may arise from using simpler econometric specifications when the structure of production exhibits great complexity. A commentary along with a reply to the commentary are included at the end of the chapter.Less

Rural and Urban Income Inequality and Poverty: Does Convergence between Sectors Offset Divergence within Them?

Robert Eastwood and Michael Lipton

in Inequality Growth and Poverty in an Era of Liberalization and Globalization

Explores recent trends in developing and transitional economies in rural–urban, rural, and urban inequality of income and poverty risk, and the offsetting trends in inequality hypothesis (OTI), which ... More

Explores recent trends in developing and transitional economies in rural–urban, rural, and urban inequality of income and poverty risk, and the offsetting trends in inequality hypothesis (OTI), which claims that, underlying the overall inequality trend, there has been a tendency for rising intrasectoral inequality to be offset by falling rural–urban inequality. The data reviewed in the chapter refute OTI with the possible, partial exception of Latin America: first, the data show no overall tendency for within‐country rural–urban inequality to increase or decrease since the 1980s; second, while modest national and regional tendencies exist, they do not, on the whole, offset trends in overall inequality. Urban–rural ratios of both mean consumption and poverty risk have commonly either risen or fallen alongside total inequality, or even been trendless. Changing urban–rural ratios of poverty or per‐person consumption need not imply changing urban bias; they may be caused by exogenous changes in relative returns to urban activities, plus entry or exit barriers, although rural‐urban inequality trends in ‘human development’ indicators (literacy, longevity, etc.) do suggest rising urban bias. The chapter is arranged in three sections: Introduction and Summary; Rural–Urban and Intrasectoral Contributions to Changes in the Overall Inequality of Consumption or Income—an econometric analysis; and Changing Rural–Urban Poverty Ratios and ‘Urban Bias’.Less

Does Educational Achievement Help Explain Income Inequality?

Daniele Checchi

in Inequality Growth and Poverty in an Era of Liberalization and Globalization

Discusses the fact that although income distribution and the distribution of educational attainments are obviously related, the sign of the relationship between educational achievements and income ... More

Discusses the fact that although income distribution and the distribution of educational attainments are obviously related, the sign of the relationship between educational achievements and income inequality cannot be predicted a priori . For this reason, the chapter investigates the empirical determinants of aggregate income inequality and, more specifically, the relative contribution of education to measured income inequality. Checchi considers this to be crucial for two reasons: first, from a theoretical point of view, it is important to understand the plausibility of studying intergenerational equilibria under stationary distributions of income and human capital in the population; second, from a policy point of view, it is important to understand whether urging countries (or people) to increase their educational achievements is going to exacerbate, moderate, or have little influence on the subsequent earnings distribution. The chapter is organized as follows: the second section reviews the literature on income inequality determinants, the third provides an empirical econometric analysis, and the last offers conclusions; an appendix indicates data sources and discusses data reliability.Less

The Recommission of Crime: Recidivism

in Criminals and Victims

This chapter presents an economic analysis of recividism or the recommission of crime. It illustrates the essentials of how the economic model of crime can be used as a framework for analyzing how a ... More

This chapter presents an economic analysis of recividism or the recommission of crime. It illustrates the essentials of how the economic model of crime can be used as a framework for analyzing how a criminal might decide to commit the crime all over again. Recidivism is empirically examined using a special data set that tracks criminal careers from a sampling of cases tried in U.S. federal judicial districts. This empirical analysis illustrates the application of econometric duration analysis in the study of recidivism and allows investigation of how specific crimes, sanctioning, and rehabilitation can influence individual-level recidivism.Less

Model Selection and Testing Non-Nested Hypotheses

M. Hashem Pesaran

in Time Series and Panel Data Econometrics

Model selection in econometric analysis involves both statistical and non-statistical considerations. It depends on the objective(s) of the analysis, the nature and the extent of economic theory ... More

Model selection in econometric analysis involves both statistical and non-statistical considerations. It depends on the objective(s) of the analysis, the nature and the extent of economic theory used, and the statistical adequacy of the model under consideration compared with other econometric models. This chapter discusses the various choice criteria concerned with the issue of ‘statistical fit’ and provides different approaches to trading-off the ‘fit’ and ‘parsimony’ of a given econometric model. It also contrasts model selection with the testing of statistical hypotheses that are non-nested, or belong to separate families of distributions, meaning that none of the individual models may be obtained from the remaining models either by imposition of parameter restrictions or through a limiting process. Exercises are provided at the end of the chapter.Less