Efficiency and ownership with reference to British ports

Abstract

This study seeks to investigate the empirical basis for the hypothesis, arising from the economics literature, that public enterprises are inherently less efficient than private enterprises, with reference to British ports which provide a comprehensive "laboratory" of mixed—ownership enterprises. The relative productive efficiency of public ports vis—a—vis private ports is evaluated in terms of efficiency frontiers of the industry at a fairly high degree of rigour. By applying the techniques of efficiency measurement the various ways that a British port producer might depart from overall productive efficiency were systematically explored. These include: production on the interior of the production possibilities set; production in the congested region of the boundary of the production possibilities set; and deviation from the scale that arises from the long—run competitive equilibrium. As well as static productive performance, productive performance relative to dynamic production frontiers is also the subject of investigation. Both mathematical programming techniques and econometric techniques are employed. To fulfil the tasks in the empirical analysis, the econometric approach has been enhanced in two ways. First, a less restrictive structure of production technology is specified in estimating efficiency frontiers in order to define parametric measures in a more meaningful way. Second, Solow's (1957) measure of productivity growth is reconsidered in a context of stochastic frontier functions, which enables us to translate efficiency gains over time into a movement towards frontiers and a movement of the frontiers. As far as British ports are concerned we found no evidence for believing the inefficiency associated with public ownership to be unavoidable. The results cast serious doubt on the transformation in productive performance brought about by the port privatisation programme.