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Three essays in productivity and efficiency analysis

thesis
posted on 27.02.2017, 01:39 by Chuan, Wang
This thesis investigates three main topics. The first topic aims to propose a Bayesian kernel approach to the estimation of efficiency in a stochastic frontier model. The second topic aims to estimate shadow prices of CO₂ emissions in EU electricity sectors using a random-coefficient, random-directional-vector output distance function approach. The third topic investigates the comparison of profitability between European and U.S. banks using a decomposition approach. The introduction of the thesis is presented in Chapter one. In Chapter two, we propose a kernel-based Bayesian framework for the analysis of stochastic frontiers and efficiency measurement. The primary feature of this framework is that the unknown distribution of inefficiency is approximated by a transformed Rosenblatt-Parzen kernel density estimator. To justify the kernel-based model, we conduct a Monte Carlo study and also apply the model to a panel of U.S. large banks. Simulation results show that the kernel-based model is capable of providing more precise estimation and prediction results than the commonly-used exponential stochastic frontier model. The Bayes factor also favors the kernel-based model over the exponential model in the empirical application. In Chapter three, we estimate shadow prices of CO₂ emissions for electricity sectors in 25 European Union countries, using a random-coefficient, random-directional-vector directional output distance function (DODF) model. The main feature of this model is that both its coefficients and directional vector are allowed to vary across production units, thus allowing different production units to have different production technologies and to follow different growth paths. Our Bayes factor analysis indicates that this model is strongly favored over the commonly-used fixed-coefficient DODF model. Our results obtained from this model suggest that for all the 25 electricity sectors as a whole, the annual shadow price for CO₂ emissions ranges from $16.84 to $48.66 (in 1990 dollars) with an average of $28.71. The results also suggest that the country-specific average shadow price differs significantly across countries, ranging from $2:46 per ton to $83:29 per ton. In addition, our estimates of the shadow price of CO₂ emissions show a downward trend for both the European Union as a whole and the majority of the sample countries. In Chapter four, we note that the poor profitability of European banks compared with their U.S. counterparts has recently raised major concerns among policy makers and researchers. This chapter attempts to shed light on the poor relative profitability of European banks, using the O’Donnell (2012) decomposition approach. This approach enables us to decompose the relative profitability of European banks into two explanatory factors — a terms-of-trade index and a total factor productivity index — with the former further decomposed into two price indexes and the latter further into four productivity and efficiency measures. Our results show that compared with U.S. banks, European banks’ profitability is not only weak, but also deteriorates over time. Our decomposition shows that the deterioration of European banks’ relative profitability is driven both by a decline in the terms-of-trade index and by a decline in the productivity index, with the former being dominant. Our further analysis shows that the decline in the terms-of-trade index is mainly due to a pronounced increase in input prices (especially an increase in funding costs), while the decline in the productivity index is driven mainly by a decrease in scale efficiency. Chapter five concludes the thesis and presents a future research plan.

History

Campus location

Australia

Principal supervisor

Brett Inder

Additional supervisor 1

Xibin Zhang

Additional supervisor 2

Guohua Feng

Year of Award

2016

Department, School or Centre

Econometrics and Business Statistics

Course

Doctor of Philosophy

Degree Type

DOCTORATE

Faculty

Faculty of Business and Economics