Persistent and transient inefficiency in ports: An application to Spanish port authorities

Abstract

We estimate technical efficiency using stochastic frontier techniques, distinguishing between persistent and transient inefficiency. Previous studies in the port efficiency literature have accounted for firm heterogeneity and time-varying technical inefficiency. However, no port studies to date have accounted for heterogeneity, time-invariant (persistent) and time-varying (transient) inefficiency. Accounting for both types of inefficiency is important because addressing them requires different types of managerial measures. Using data from a sample of Spanish port authorities observed over the period 1993–2020, we estimate a stochastic output distance frontier with four error components which includes determinants of persistent and transient inefficiency. Port authorities show very low levels of transient inefficiency but higher levels of persistent inefficiency. Overall inefficiency is therefore basically due to persistent inefficiency. We find that port authorities managing more than a single port suffer from greater persistent inefficiency, whereas those located on the Mediterranean seaboard have a structural advantage over their Atlantic seaboard counterparts in terms of persistent inefficiency. The type of output and its share of national output also affect persistent inefficiency.