To read this content please select one of the options below:

Random Versus Explained Inefficiency in Stochastic Frontier Analysis: The Case of Queensland Hospitals

Zhichao Wang (School of Economics, University of Queensland, Brisbane, QLD, Australia)

Valentin Zelenyuk (School of Economics and Centre for Efficiency and Productivity Analysis, University of Queensland, Brisbane, QLD, Australia)

Essays in Honor of Subal Kumbhakar

ISBN: 978-1-83797-874-8, eISBN: 978-1-83797-873-1

Publication date: 5 April 2024

Abstract

Estimation of (in)efficiency became a popular practice that witnessed applications in virtually any sector of the economy over the last few decades. Many different models were deployed for such endeavors, with Stochastic Frontier Analysis (SFA) models dominating the econometric literature. Among the most popular variants of SFA are Aigner, Lovell, and Schmidt (1977), which launched the literature, and Kumbhakar, Ghosh, and McGuckin (1991), which pioneered the branch taking account of the (in)efficiency term via the so-called environmental variables or determinants of inefficiency. Focusing on these two prominent approaches in SFA, the goal of this chapter is to try to understand the production inefficiency of public hospitals in Queensland. While doing so, a recognized yet often overlooked phenomenon emerges where possible dramatic differences (and consequently very different policy implications) can be derived from different models, even within one paradigm of SFA models. This emphasizes the importance of exploring many alternative models, and scrutinizing their assumptions, before drawing policy implications, especially when such implications may substantially affect people’s lives, as is the case in the hospital sector.

Keywords

Acknowledgements

Acknowledgments

The authors acknowledge the support from Australian Research Council (grant FT170100401) and The University of Queensland. We thank the editors and anonymous referees of Advances in Econometrics for their constructive comments. We thank Queensland Health and AIHW for providing the hospital data sets we utilized in this paper. We are also thankful for the valuable feedback from Peter Bogetoft, David Du, Bao Hoang Nguyen, Hong Ngoc Nguyen, Evelyn Smart, Laya Venkataramanan, Jongsay Yong, and the audience of Australian Conference of Economists (2022), CEPA Conference (2022), PEARL meetings, etc. These organizations and individuals are not responsible for the views expressed in this chapter.

Citation

Wang, Z. and Zelenyuk, V. (2024), "Random Versus Explained Inefficiency in Stochastic Frontier Analysis: The Case of Queensland Hospitals", Parmeter, C.F., Tsionas, M.G. and Wang, H.-J. (Ed.) Essays in Honor of Subal Kumbhakar (Advances in Econometrics, Vol. 46), Emerald Publishing Limited, Leeds, pp. 371-413. https://doi.org/10.1108/S0731-905320240000046013

Publisher

:

Emerald Publishing Limited