Description: "Industrial Efficiency in Six Nations continues the pioneering research begun in Caves and Barton's "Efficiency in U.S. Manufacturing Industries, extending it to the international sphere and laying the empirical groundwork for a deeper understanding of the sources of inefficiency and their cost in productivity.

This extended project is the first to apply the stochastic frontier production function routinely, with results that are both meaningful and sophisticated. Of particular interest are substantive results concerning the effects of exposure to competition, both domestic and foreign, and of organizational factors such as corporate diversification and unionization on productive efficiency.

Caves and his colleagues investigate the gaps between average and best-practice efficiency of plants in the manufacturing industries of the United States, Canada, Great Britain, Australia, Japan, and Korea. They show that the resulting measures of industrial efficiency can be used to test many hypotheses about how efficiency differs from industry to industry. They confirm the generally favorable effects of competition on efficiency and also test many effects of organizational choices, while controlling for dynamic disturbances and sources of intrinsic diversity. They also explore what happens to the typical industry's efficiency over time, show how much and why the efficiency of large and small units differs, and probe the relation of the gap between an industry's average and best-practice efficiency and its international standing in average productivity.

Richard E. Caves is Professor of Economics and Business Administration at Harvard University.

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