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Introducing regulation in the measurement of efficiency, with an application to the Canadian air carriers industry

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  • Ouellette, Pierre
  • Petit, Patrick
  • Tessier-Parent, Louis-Philippe
  • Vigeant, Stéphane

Abstract

This paper proposes a method to measure efficiency in highly regulated capital-intensive industries in the presence of state-owned enterprises. We generalize the data envelopment analysis method to include regulation in the model, as well as the quasi-fixed nature of capital and its links with the firms' investment decisions. The framework is then applied to the Canadian air carriers industry to study the impact of regulation changes on the efficiency of the various carriers, between 1960 and 1999. Our results show that deregulation explains a large part of the measured inefficiency.

Suggested Citation

  • Ouellette, Pierre & Petit, Patrick & Tessier-Parent, Louis-Philippe & Vigeant, Stéphane, 2010. "Introducing regulation in the measurement of efficiency, with an application to the Canadian air carriers industry," European Journal of Operational Research, Elsevier, vol. 200(1), pages 216-226, January.
  • Handle: RePEc:eee:ejores:v:200:y:2010:i:1:p:216-226
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    References listed on IDEAS

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    1. Pierre Ouellette & Stéphane Vigeant, 2001. "On the existence of a regulated production function," Journal of Economics, Springer, vol. 73(2), pages 193-200, June.
    2. Ouellette, Pierre & Petit, Patrick & Vigeant, Stéphane, 2005. "Investment and regulation: the case of Canadian air carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 41(2), pages 93-113, March.
    3. Daniel Bilodeau & Pierre-Yves Crémieux & Brigitte Jaumard & Pierre Ouellette & Tsévi Vovor, 2004. "Measuring Hospital Performance in the Presence of Quasi-Fixed Inputs: An Analysis of Québec Hospitals," Journal of Productivity Analysis, Springer, vol. 21(2), pages 183-199, March.
    4. Pierre Lasserre & Pierre Ouellette, 1994. "Factor Demands, Cost Functions, and Technology Measurements for Regulated Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 218-242, February.
    5. A. B. Treadway, 1969. "On Rational Entrepreneurial Behaviour and the Demand for Investment," Review of Economic Studies, Oxford University Press, vol. 36(2), pages 227-239.
    6. Dyson, R. G. & Allen, R. & Camanho, A. S. & Podinovski, V. V. & Sarrico, C. S. & Shale, E. A., 2001. "Pitfalls and protocols in DEA," European Journal of Operational Research, Elsevier, vol. 132(2), pages 245-259, July.
    7. Rajiv D. Banker & Richard C. Morey, 1986. "The Use of Categorical Variables in Data Envelopment Analysis," Management Science, INFORMS, vol. 32(12), pages 1613-1627, December.
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    15. Boon L Lee & Clevo Wilson & Carl A Pasurka, Jr, 2013. "The Good, the Bad and the Efficient: Productivity, efficiency and technical change in the Airline Industry, 2004:2008," School of Economics and Finance Discussion Papers and Working Papers Series 299, School of Economics and Finance, Queensland University of Technology.
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    17. Barros, Carlos Pestana & Peypoch, Nicolas, 2009. "An evaluation of European airlines' operational performance," International Journal of Production Economics, Elsevier, vol. 122(2), pages 525-533, December.
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    19. Cui, Qiang & Li, Ye & Yu, Chen-lu & Wei, Yi-Ming, 2016. "Evaluating energy efficiency for airlines: An application of Virtual Frontier Dynamic Slacks Based Measure," Energy, Elsevier, vol. 113(C), pages 1231-1240.
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    21. Merkert, Rico & Hensher, David A., 2011. "The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(7), pages 686-695, August.
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