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Measures of Technical Efficiency in Two Sectors: Banks and Automobiles

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  • Ciro Rapacciuolo

Abstract

The aim of this paper is to evaluate technical efficiency in the automobile and the banking industry, using balance sheet data on businesses in the two sectors: the world leading automobile producers and the top-20 Italian banking groups. The measurement of inefficiency, a strand of literature started by Farrell (1957), is conducted by means of the Data Envelopment Analysis (DEA), which is one of the existing approaches in this field; Fare, Grosskopf e Lovell (1994) prepared the ground for the application of such a methodology, building a complete theoretical arrangement of the different measures potentially available. This non-stochastic and non-parametric technique calculates, for each sector, the production frontier as the linear envelop of input-output data relative to the specific businesses in the sector under consideration and measures inefficiency as the distance of the specific company from the frontier. With respect to the existing literature, the paper brings two novelties: one methodological, a "monetary measure" of technical inefficiency; the other empirical, the application of the technique to the automobile industry. A bit surprisingly, we find basically the same distribution of technical inefficiency in the banking and in the automobile industry. For the banking sector, the comparison with the results of previous research shows that as a whole, in the five years between 1996 and 2001, the picture has slightly improved.

Suggested Citation

  • Ciro Rapacciuolo, 2007. "Measures of Technical Efficiency in Two Sectors: Banks and Automobiles," L'industria, Società editrice il Mulino, issue 4, pages 737-770.
    • Handle: RePEc:mul:j0hje1:doi:10.1430/25939:y:2007:i:4:p:737-770
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