Applying the stochastic frontier approach to measure hotel managerial efficiency in Taiwan

Abstract

This paper analyses the cost efficiency of Taiwan's international tourist hotel sector. A stochastic cost frontier function with three inputs (i.e. labor, food and beverage, and materials) and one output as the total revenue is specified and used to estimate hotel efficiency. The results reveal that hotels in Taiwan are on average operating at 80% efficiency. In addition, the factor of operation type significantly affects hotel efficiency, whereby the efficiency of chain hotels is higher than that of independent hotels.