Direct and Indirect Measures of Capacity Utilization: A Nonparametric Analysis of U.S. Manufacturing

We measure the capacity output of a firm as the maximum amount producible by a firm given a specific quantity of the quasi-fixed input and an overall expenditure constraint for its choice of variable inputs. We compute this indirect capacity utilization measure for the total manufacturing sector in the US as well as for a number of disaggregated industries, for the period 1970-2001. We find considerable variation in capacity utilization rates both across industries and over years within industries. Our results suggest that the expenditure constraint was binding, especially in periods of high interest rates.

The Directional Distance Function and Measurement of Super-Efficiency: An Application to Airlines Data

Lovell and Rouse (LR) have recently proposed a modification of the standard DEA model that overcomes the infeasibility problem often encountered in computing super-efficiency. In the LR procedure one appropriately scales up the observed input vector (scale down the output vector) of the relevant super-efficient firm thereby usually creating its inefficient surrogate. An alternative procedure proposed in this paper uses the directional distance function introduced by Chambers, Chung, and Färe and the resulting Nerlove-Luenberger (NL) measure of super-efficiency. The fact that the directional distance function combines features of both an input-oriented and an output-oriented model, generally leads to a more complete ranking of the observations than either of the oriented models. An added advantage of this approach is that the NL super-efficiency measure is unique and does not depend on any arbitrary choice of a scaling parameter. A data set on international airlines from Coelli, Perelman, and Griffel-Tatje (2002) is utilized in an illustrative empirical application.

The Optimal Capital Structure of Banks: Balancing Deposit Insurance, Capital Requirements and Tax-Advantaged Debt

The capital structure and regulation of financial intermediaries is an important topic for practitioners, regulators and academic researchers. In general, theory predicts that firms choose their capital structures by balancing the benefits of debt (e.g., tax and agency benefits) against its costs (e.g., bankruptcy costs). However, when traditional corporate finance models have been applied to insured financial institutions, the results have generally predicted corner solutions (all equity or all debt) to the capital structure problem. This paper studies the impact and interaction of deposit insurance, capital requirements and tax benefits on a bankÇs choice of optimal capital structure. Using a contingent claims model to value the firm and its associated claims, we find that there exists an interior optimal capital ratio in the presence of deposit insurance, taxes and a minimum fixed capital standard. Banks voluntarily choose to maintain capital in excess of the minimum required in order to balance the risks of insolvency (especially the loss of future tax benefits) against the benefits of additional debt. Because we derive a closed- form solution, our model provides useful insights on several current policy debates including revisions to the regulatory framework for GSEs, tax policy in general and the tax exemption for credit unions.