A Comparison of Parametric and Non-Parametric Efficiency Measures: The Case of Norwegian Ferries

Abstract

The trunk road system in Norway has to be supplemented by a number of ferries due to the long coastline with numerous islands and fjords. Most of the ferries are run by private companies, but at a loss. The deficits are covered by the Ministry of Transport. The subsidies have risen rapidly in the last years and have focussed attention on whether the ferries are really run as efficiently as possible. To change the incentives to economize, a lump-sum payment is considered. To implement such a system, an initial assessment of reasonable input requirements is needed. The aim of this article is to provide such a yardstick by establishing a best practice frontier. Both a non-parametric and a parametric approach to a deterministic frontier are tried and differences of results discussed. Peculiarities due to choice of methods are revealed. The efficiency distributions are quite similar for the two methods except for scale efficiency, where the parametric method indicates substantial unrealized scale economies, while the non-parametric approach shows the largest and some small ferries to be scale efficient. The results indicate a substantial rationalization potential of about 30 percent in total.