Firm and time varying technical and allocative efficiency: an application to port cargo handling firms

Abstract

In this paper we present an econometric model to calculate both, the technical and the allocative efficiency in cargo handling firms in the port of Las Palmas (Spain). To achieve these aims, we estimate a system of equations consisting of a translog input distance function and cost shares equations. Using this procedure we can check the hypothesis in which, given technology and prices, terminal port inputs are not optimally allocated in the sense that costs are not minimized. The main contribution of this paper is to apply an empirical model that allows the unbiased estimation of allocative inefficiency of input use in two ways: an error components approach and a parametric approach. We also avoid the Greene Problem and allow allocative inefficiency to be systematic. Both size and traffic mix are first shown to be sufficiently diverse as to allow for a reliable estimation of a representative flexible (translog) function.