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The Distribution and Heterogeneity of Technical Efficiency within Industries : An Empirical Assessment

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Author Info
Michael Fritsch
Andreas Stephan

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Abstract

This paper analyzes the distribution of technical efficiency within manufacturing industries. Using a representative sample of 35,000 firms in 255 industries of the German cost structure census, technical efficiencies are estimated by applying a deterministic frontier production function with firmspecific fixed effects. A new measure is also introduced for characterizing the extent of heterogeneity within an industry that is robust with regard to extreme values of a few small firms. It was found that the level of intra-industry heterogeneity is mainly determined by an industries’ average technical efficiency, average firm size, capital intensity and the rate of new firm formation. Most strikingly, we find that in about 95 percent of industries the distribution of technical efficiency is skewed to the right, not to the left as is commonly assumed.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 453.

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Length: II, 45 p.
Date of creation: 2004
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Handle: RePEc:diw:diwwpp:dp453

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Related research
Keywords: Technical efficiency Heterogeneity Deterministic production function frontier

Find related papers by JEL classification:
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
J62 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Job, Occupational and Intergenerational Mobility; Promotion

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William H. Greene, 1993. "Frontier Production Functions," Working Papers 93-20, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Cubbin, John & Geroski, Paul A, 1987. "The Convergence of Profits in the Long Run: Inter-firm and Inter-industry Comparisons," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 427-42, June. [Downloadable!] (restricted)
  3. Klepper, Steven, 1997. "Industry Life Cycles," Industrial and Corporate Change, Oxford University Press, vol. 6(1), pages 145-81.
  4. Michael Fritsch & Andreas Stephan, 2006. "Measuring performance heterogeneity within groups -- a two-dimensional approach," Applied Economics Letters, Taylor and Francis Journals, vol. 13(1), pages 17-20, January. [Downloadable!] (restricted)
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  6. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December. [Downloadable!] (restricted)
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  7. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
  8. Caballero, Ricardo J & Hammour, Mohamad L, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 805-52, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Joachim Wagner, 2006. "Politikrelevante Folgerungen aus Analysen mit wirtschaftsstatistischen Einzeldaten der Amtlichen Statistik," Working Paper Series in Economics 16, University of Lüneburg, Institute of Economics. [Downloadable!]
  2. Arnab Bhattacharjee & Eduardo de Castro & (Late) Chris Jensen-Butler, 2007. " Evaluating Economic Theories of Growth and Inequality: A Study of the Danish Economy," CDMA Working Paper Series 0723, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
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