Edited by André de Palma, Robin Lindsey, Emile Quinet and Roger Vickerman
Chapter 13: Efficiency Measurement Theory and its Application to Airport Benchmarking
Tae Hoon Oum, Katsuhiro Yamaguchi and YuichiroYoshida INTRODUCTION Efficiency measurement and benchmarking is an important topic whether one is interested in comparing efficiency of a firm or a sub-unit of a firm (a decision making unit, or a DMU in short) relative to its peers/competitors, learning to improve one’s efficiency performance relative to a benchmark unit, or investigating effects of a public policy or a regulation. Efficiency measurement is critical for industries where firms do not face strong competition in the market. Examples include transport infrastructure providers such as airports, seaports, highways, urban transit systems and so forth, public utilities such as electricity, water, public schools, hospitals, and other subsidized programs, and regulated industries where markets can not discipline firms effectively. Most national and state statistical agencies in OECD countries measure and regularly publish the total factor productivities of the national economy, provinces and various industrial sectors. For example, Statistics Canada computes total-factor productivity (TFP) for the Canadian economy, each province and over 100 different industrial sectors of Canada. The US Bureau of Labor Statistics computes and publishes similar TFPs for the US economy, states’ economies, and a large number of its industrial sectors, and the labor share and capital share of the TFP growths. These measures are then used by various industrial sectors to make wage offers to their unions, and for subsequent negotiations with trade unions. For example, Tampa International Airport decided to benchmark various parts of its operations with peer airports in order to see what they...
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