IDEAS home Printed from https://ideas.repec.org/a/kap/jproda/v55y2021i2d10.1007_s11123-020-00595-5.html
   My bibliography  Save this article

Resource allocation in multi-divisional multi-product firms

Author

Listed:
  • Binlei Gong

    (Zhejiang University)

  • Robin C. Sickles

    (Rice University)

Abstract

This paper is concerned with specifying and estimating the productive characteristics of multidivisional multiproduct companies at the divisional level. In order to accomplish this, we augment division-level information with inputs that are imputed based on profit-maximizing allocations within each division. This study builds on work by De Loecker et al. (2016) as well as Olley and Pakes (1996), Levinsohn and Petrin (2003) and Ackerberg et al. (2015), and extends this work by lifting a key assumption that single- and multi-product/division firms have the same production technique for the same product/segment. We estimate the production function and impute input allocations simultaneously in the absence of this key assumption as well as the constant share constraint of the input portfolio. Finally, our approach is applied to estimate the division-specific productivity of firms that compete in five segments of the global oilfield market to better understand the motivation of firms’ investment, divestment, mergers and acquisitions (M&A).

Suggested Citation

  • Binlei Gong & Robin C. Sickles, 2021. "Resource allocation in multi-divisional multi-product firms," Journal of Productivity Analysis, Springer, vol. 55(2), pages 47-70, April.
    • Handle: RePEc:kap:jproda:v:55:y:2021:i:2:d:10.1007_s11123-020-00595-5
    DOI: 10.1007/s11123-020-00595-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11123-020-00595-5
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11123-020-00595-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peter R. Hartley & Kenneth B. Medlock III, 2013. "Changes in the Operational Efficiency of National Oil Companies," The Energy Journal, , vol. 34(2), pages 27-58, April.
    2. Sreejith Aravindakshan & Frederick Rossi & T. S. Amjath-Babu & Prakashan Chellattan Veettil & Timothy J. Krupnik, 2018. "Application of a bias-corrected meta-frontier approach and an endogenous switching regression to analyze the technical efficiency of conservation tillage for wheat in South Asia," Journal of Productivity Analysis, Springer, vol. 49(2), pages 153-171, June.
    3. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    4. Ohene-Asare, Kwaku & Turkson, Charles & Afful-Dadzie, Anthony, 2017. "Multinational operation, ownership and efficiency differences in the international oil industry," Energy Economics, Elsevier, vol. 68(C), pages 303-312.
    5. Gong, Binlei, 2018. "Agricultural reforms and production in China: Changes in provincial production function and productivity in 1978–2015," Journal of Development Economics, Elsevier, vol. 132(C), pages 18-31.
    6. Stein, Jeremy C, 1997. "Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    7. Carmelo Reverte, 2012. "The Impact of Better Corporate Social Responsibility Disclosure on the Cost of Equity Capital," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 19(5), pages 253-272, September.
    8. Binlei Gong, 2020. "Effects of Ownership and Business Portfolio on Production in the Oil and Gas Industry," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    9. Binlei Gong, 2020. "New Growth Accounting," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 641-661, March.
    10. Sunil Poshakwale & John K. Courtis, 2005. "Disclosure level and cost of equity capital: evidence from the banking industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(7), pages 431-444.
    11. Schankerman, Mark & Pakes, Ariel, 1986. "Estimates of the Value of Patent Rights in European Countries during the Post-1950 Period," Economic Journal, Royal Economic Society, vol. 96(384), pages 1052-1076, December.
    12. Binlei Gong & Robin C. Sickles, 2020. "Non-structural and structural models in productivity analysis: study of the British Isles during the 2007–2009 financial crisis," Journal of Productivity Analysis, Springer, vol. 53(2), pages 243-263, April.
    13. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    14. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    15. Stacy Eller & Peter Hartley & Kenneth Medlock, 2011. "Empirical evidence on the operational efficiency of National Oil Companies," Empirical Economics, Springer, vol. 40(3), pages 623-643, May.
    16. Yujiro Hayami, 1969. "Sources of Agricultural Productivity Gap Among Selected Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 51(3), pages 564-575.
    17. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    18. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    19. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    20. Nan Jiang & Basil Sharp, 2015. "Technical efficiency and technological gap of New Zealand dairy farms: a stochastic meta-frontier model," Journal of Productivity Analysis, Springer, vol. 44(1), pages 39-49, August.
    21. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    22. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    23. Soderbom, Mans & Teal, Francis, 2004. "Size and efficiency in African manufacturing firms: evidence from firm-level panel data," Journal of Development Economics, Elsevier, vol. 73(1), pages 369-394, February.
    24. Wolf, Christian, 2009. "Does ownership matter? The performance and efficiency of State Oil vs. Private Oil (1987-2006)," Energy Policy, Elsevier, vol. 37(7), pages 2642-2652, July.
    25. Ku-Hsieh Chen & Hao-Yen Yang, 2011. "A cross-country comparison of productivity growth using the generalised metafrontier Malmquist productivity index: with application to banking industries in Taiwan and China," Journal of Productivity Analysis, Springer, vol. 35(3), pages 197-212, June.
    26. Zheng WEI & Rui HAO, 2011. "The Role Of Human Capital In China'S Total Factor Productivity Growth: A Cross‐Province Analysis," The Developing Economies, Institute of Developing Economies, vol. 49(1), pages 1-35, March.
    27. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    28. Scherer, F. M. & Harhoff, Dietmar, 2000. "Technology policy for a world of skew-distributed outcomes," Research Policy, Elsevier, vol. 29(4-5), pages 559-566, April.
    29. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    30. Jonathan Levin, 2002. "Multilateral Contracting and the Employment Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 1075-1103.
    31. Valmari, Nelli, 2016. "Estimating Production Functions of Multiproduct Firms," ETLA Working Papers 37, The Research Institute of the Finnish Economy.
    32. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
    33. Gong, Binlei, 2020. "Multi-dimensional interactions in the oilfield market: A jackknife model averaging approach of spatial productivity analysis," Energy Economics, Elsevier, vol. 86(C).
    34. Shurui Zhang & Shuo Wang & Lingran Yuan & Xiaoguang Liu & Binlei Gong, 2020. "The impact of epidemics on agricultural production and forecast of COVID-19," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 12(3), pages 409-425, July.
    35. Chen, Shuai & Gong, Binlei, 2021. "Response and adaptation of agriculture to climate change: Evidence from China," Journal of Development Economics, Elsevier, vol. 148(C).
    36. Gary Koop & Jacek Osiewalski & Mark F. J. Steel, 1999. "The Components of Output Growth: A Stochastic Frontier Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 455-487, November.
    37. Berlemann Michael & Wesselhöft Jan-Erik, 2014. "Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method: A Survey of Previous Implementations and New Empirical Evidence for 103 Countries," Review of Economics, De Gruyter, vol. 65(1), pages 1-34, April.
    38. Teece, David J, 1981. "Internal Organization and Economic Performance: An Empirical Analysis of the Profitability of Principal Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 30(2), pages 173-199, December.
    39. Jaume Puig‐Junoy, 2001. "Technical Inefficiency and Public Capital in U.S. States: A Stochastic Frontier Approach," Journal of Regional Science, Wiley Blackwell, vol. 41(1), pages 75-96, February.
    40. Hayami, Yujiro & Ruttan, Vernon W, 1970. "Agricultural Productivity Differences Among Countries," American Economic Review, American Economic Association, vol. 60(5), pages 895-911, December.
    41. Mastromarco, Camilla & Ghosh, Sucharita, 2009. "Foreign Capital, Human Capital, and Efficiency: A Stochastic Frontier Analysis for Developing Countries," World Development, Elsevier, vol. 37(2), pages 489-502, February.
    42. Gong, Binlei, 2018. "Different behaviors in natural gas production between national and private oil companies: Economics-driven or environment-driven?," Energy Policy, Elsevier, vol. 114(C), pages 145-152.
    43. KOOP , Gary & OSIEWALSKI, Jacek & STEEL , Mark, 1995. "Measuring the Sources of Output Growth in a Panel of Countries," LIDAM Discussion Papers CORE 1995042, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    44. ZELLNER, Arnold & KMENTA, Jan & DREZE, Jacques H., 1966. "Specification and estimation of Cobb-Douglas production function models," LIDAM Reprints CORE 12, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    45. William R. Gebhardt & Charles M. C. Lee & Bhaskaran Swaminathan, 2001. "Toward an Implied Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 135-176, June.
    46. David J. Teece, 1998. "Economic Performance and the Theory of the Firm," Books, Edward Elgar Publishing, number 948.
    47. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    48. Melvyn G. Coles, 2001. "Equilibrium Wage Dispersion, Firm Size and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 159-187, January.
    49. Ran Duchin & Amir Goldberg & Denis Sosyura, 2017. "Spillovers Inside Conglomerates: Incentives and Capital," The Review of Financial Studies, Society for Financial Studies, vol. 30(5), pages 1696-1743.
    50. Hartley, Peter & Medlock III, Kenneth B., 2008. "A model of the operation and development of a National Oil Company," Energy Economics, Elsevier, vol. 30(5), pages 2459-2485, September.
    51. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    2. Zesen Qian & Lingran Yuan & Shuo Wang & Qizheng Zhang & Binlei Gong, 2021. "Epidemics, Convergence, and Common Prosperity: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(6), pages 117-138, November.
    3. Yuan, Lingran & Zhang, Qizheng & Wang, Shuo & Hu, Weibin & Gong, Binlei, 2022. "Effects of international trade on world agricultural production and productivity: evidence from a panel of 126 countries 1962-2014," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 25(2), March.
    4. Antonio Peyrache & Maria C. A. Silva, 2022. "Efficiency and Productivity Analysis from a System Perspective: Historical Overview," Springer Books, in: Duangkamon Chotikapanich & Alicia N. Rambaldi & Nicholas Rohde (ed.), Advances in Economic Measurement, chapter 0, pages 173-230, Springer.
    5. Zhang, Qizheng & Qian, Zesen & Wang, Shuo & Yuan, Lingran & Gong, Binlei, 2022. "Productivity drain or productivity gain? The effect of new technology adoption in the oilfield market," Energy Economics, Elsevier, vol. 108(C).
    6. Emmanuel Dhyne & Amil Petrin & Valerie Smeets & Frederic Warzynski, 2024. "Multiproduct Firms, Import Competition and Productivity," CESifo Working Paper Series 11155, CESifo.
    7. Binlei Gong, 2020. "Effects of Ownership and Business Portfolio on Production in the Oil and Gas Industry," The Energy Journal, , vol. 41(1), pages 33-54, January.
    8. Lingran Yuan & Shurui Zhang & Shuo Wang & Zesen Qian & Binlei Gong, 2021. "World agricultural convergence," Journal of Productivity Analysis, Springer, vol. 55(2), pages 135-153, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Qizheng & Qian, Zesen & Wang, Shuo & Yuan, Lingran & Gong, Binlei, 2022. "Productivity drain or productivity gain? The effect of new technology adoption in the oilfield market," Energy Economics, Elsevier, vol. 108(C).
    2. Gong, Binlei, 2020. "Multi-dimensional interactions in the oilfield market: A jackknife model averaging approach of spatial productivity analysis," Energy Economics, Elsevier, vol. 86(C).
    3. Lingran Yuan & Shurui Zhang & Shuo Wang & Zesen Qian & Binlei Gong, 2021. "World agricultural convergence," Journal of Productivity Analysis, Springer, vol. 55(2), pages 135-153, April.
    4. Gong, Binlei, 2018. "Different behaviors in natural gas production between national and private oil companies: Economics-driven or environment-driven?," Energy Policy, Elsevier, vol. 114(C), pages 145-152.
    5. David Van Dijcke, 2022. "On the Non-Identification of Revenue Production Functions," Papers 2212.04620, arXiv.org, revised May 2024.
    6. Jamil, Nida & Chaudhry, Theresa Thompson & Chaudhry, Azam, 2022. "Trading textiles along the new silk route: The impact on Pakistani firms of gaining market access to China," Journal of Development Economics, Elsevier, vol. 158(C).
    7. Aguiar, Victor H. & Kashaev, Nail & Allen, Roy, 2023. "Prices, profits, proxies, and production," Journal of Econometrics, Elsevier, vol. 235(2), pages 666-693.
    8. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2020. "Energy Cost Pass-Through in US Manufacturing: Estimates and Implications for Carbon Taxes," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 303-342, April.
    9. Michael Rubens, 2023. "Market Structure, Oligopsony Power, and Productivity," American Economic Review, American Economic Association, vol. 113(9), pages 2382-2410, September.
    10. Maican, Florin & Orth, Matilda, 2021. "Determinants of economies of scope in retail," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    11. Lenzu, Simone & Manaresi, Francesco, 2018. "Do Marginal Products Differ from User Costs? Micro-Level Evidence from Italian Firms," Working Papers 276, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    12. Gong, Binlei, 2018. "Agricultural reforms and production in China: Changes in provincial production function and productivity in 1978–2015," Journal of Development Economics, Elsevier, vol. 132(C), pages 18-31.
    13. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    14. Al-Mana, Ali A. & Nawaz, Waqas & Kamal, Athar & Koҫ, Muammer, 2020. "Financial and operational efficiencies of national and international oil companies: An empirical investigation," Resources Policy, Elsevier, vol. 68(C).
    15. Yuan, Lingran & Zhang, Qizheng & Wang, Shuo & Hu, Weibin & Gong, Binlei, 2022. "Effects of international trade on world agricultural production and productivity: evidence from a panel of 126 countries 1962-2014," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 25(2), March.
    16. Binlei Gong & Robin C. Sickles, 2020. "Non-structural and structural models in productivity analysis: study of the British Isles during the 2007–2009 financial crisis," Journal of Productivity Analysis, Springer, vol. 53(2), pages 243-263, April.
    17. Ettore Panetti, 2019. "The Economics of The European Deposit Insurance Scheme," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    18. Gong, Binlei, 2018. "Interstate competition in agriculture: Cheer or fear? Evidence from the United States and China," Food Policy, Elsevier, vol. 81(C), pages 37-47.
    19. Emmanuel Dhyne & Amil Petrin & Valerie Smeets & Frederic Warzynski, 2024. "Multiproduct Firms, Import Competition and Productivity," CESifo Working Paper Series 11155, CESifo.
    20. Lu, Yi & Sugita, Yoichi & 杉田, 洋一 & Zhu, Lianming, 2019. "Wage and Markdowns and FDI Liberalization," Discussion paper series HIAS-E-83, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

    More about this item

    Keywords

    Multi-divisional; Multi-product firm; Heterogeneous technologies; Productivity and performance; Global oilfield market;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jproda:v:55:y:2021:i:2:d:10.1007_s11123-020-00595-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.