Title: Estimating production technical efficiency for the US biopharmaceutical industry

Authors: Yi-Hsing Lin; Chun-Fu Hong

Addresses: Department of Business Administration, National Quemoy University, University Rd., Jinning Township, Kinmen, Taiwan. ' Department of Research and Development, Abnova Company, 9th Fl., No. 108, Jhouzih St. Neihu District, Taipei City 114, Taiwan

Abstract: This article estimates the production technical efficiency of pharmaceutical companies and biotechnology companies under heterogeneous technologies. We employ metafrontier analysis to estimate the production metafrontier technical efficiency during the period 1989-2007. When using traditional stochastic frontier analysis, the results show that the technical efficiency of the biotechnology companies is smaller than that of the pharmaceutical companies. However, when using metafrontier analysis, the technical efficiency of the biotechnology companies is found to be significantly higher than that of the pharmaceutical companies. Thus, using the traditional stochastic frontier analysis to estimate the production technical efficiency of the biopharmaceutical industry may lead to erroneous conclusions. This paper has the advantage of being able to solve the possible bias that might arise from assuming that frontiers are identical as in conventional studies, and the inefficiencies can be evaluated elastically and compared appropriately when technologies are heterogeneous.

Keywords: biopharmaceutical industry; production technology; stochastic frontier analysis; metafrontier analysis; USA; United States; technical efficiency; pharmaceutical industry; biotechnology industry.

DOI: 10.1504/IJBT.2012.050240

International Journal of Biotechnology, 2012 Vol.12 No.3, pp.184 - 197

Accepted: 03 Jul 2012
Published online: 30 Oct 2014 *

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