Measuring Technical and Scale Inefficiencies in the Beer Industry: Nonparametric and Parametric Evidence

Abstract

Two alternative approaches of efficiency measurement, nonparametric and statistical, are employed to calculate three types of efficiency indexes for the U.S. beer industry over the period 1950-1986. The results indicate that the beer industry was operating at a high level of pure technical efficiency over that period. The mean value of this efficiency measure is 93.7 percent based on the nonparametric approach and 87.5 percent based on the statistical approach. The two approaches yield dissimilar values and sources for overall technical inefficiency. The overall technical efficiency index computed under the nonparametric approach stands at 91.10 percent and the observed inefficiency is found to be more due to pure technical inefficiency than to scale inefficiency. Using the statistical approach, the beer industry is found to be less overall technically efficient (68.42 percent) than indicated by the nonparametric methodology and the observed inefficiency is found to be primarily contributed to by scale inefficiency.