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Empirical Economics

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31-08-2017

Estimations of cost metafrontier Malmquist productivity index: using international tourism hotels in Taiwan as an example

Authors: Tsui-Yueh Cho, Tsai-Yi Wang

Published in: Empirical Economics | Issue 4/2018

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Abstract

This study introduces a novel way of calculating and analyzing cost metafrontier Malmquist productivity index model (CMMPI) under variable return to scale measurement. The CMMPI which reflects operational performance more comprehensively and determine ways of enhancing future competiveness, not only estimates efficiency change but also decomposes gap ratio thus enabling the decision making unit to differentiate group frontier from metafrontier within the broad definition of “catch-up.” Empirical results show that the CMMPI of international tourism hotels in Taiwan declined by 0.9% from 2002 to 2010 mainly because of the deterioration of meta-technical efficiency change, meta-allocative efficiency change, meta-cost scale efficiency change, and the meta-input price effect change. Empirical results suggest that the completeness of cost approach is useful for exploring the characteristics of the Taiwanese international tourism hotel industry. Moreover, the international chain hotel is significantly superior to independent hotels in meta-cost efficiency, meta-technical efficiency, and meta-allocative efficiency, and several managerial insights and implications are discussed.

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The possible misleading conclusion of a MPI without considering the effect of the scale efficiency change is implied in the empirical results of Huang et al. (2009)

The decomposition process is described in detail in “Appendix A”

It is worth mentioning that the original data contained a total of 57 international tourism hotels, only 44 hotels (8 hotels belong to international chain hotels and 36 are independent hotels) with complete data were included in the samples. Although the sample covers about 70.96% of international tourism hotels in Taiwan, the international chain hotels are relative small number and their size are relative larger than independent hotels. The lack of peers in this group might yield that most of them are artificially more efficient.

If we view the guest room as quasi-fixed input to construct the quasi-fixed CMMPI model, then the empirical results show that the average score of CMMPI with a quasi-fixed input variable is 1.005 in the survey period. In other words, the average CMMPI with a quasi-fixed input variable (guest rooms) is a bit smaller (1.005) than the average CMMPI with all variable inputs (1.009). The results imply that all assuming inputs can be instantly set to their optimal levels overestimates DMUs’ capacity to adjust.

Guidance for star-rated Hotels to join international or domestic hotel chain brands is to encourage domestic hotels to take part in star rating evaluations. This guidance subsidy the membership fees, management fees, franchise fees, royalty fees and technical guidance fees related to joining international or domestic hotel chains, the amount is 50% of total fees, up to NT$5 million per year. Another example is amended guidelines on implementation of M.O.T.C. were approved in 2009 and 2010, preferential loans granted to tourism enterprises had reached NT$4.7 billion; subsidies for loan interests had reached NT$37.6 million. In 2014, the hotels that were certified star-rated hotels and joined international or domestic chain hotel brands were to be subsidized. Nineteen star-rated hotels which applied for the subsidy were approved and were subsidized with a total of NT$4.5 million. (Data Source: Tourism Bureau M.O.T.C. Taiwan 2010 and 2015Annual Report).

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Title: Estimations of cost metafrontier Malmquist productivity index: using international tourism hotels in Taiwan as an example
Authors: Tsui-Yueh Cho
Tsai-Yi Wang
Publication date: 31-08-2017
Publisher: Springer Berlin Heidelberg
Published in: Empirical Economics / Issue 4/2018
Print ISSN: 0377-7332
Electronic ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-017-1329-z

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