Measuring efficiency in the hotel industry: A stochastic frontier approach
Franklin Michello1999, International Journal of Hospitality Management
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Abstract
This study employs a stochastic frontier technique to estimate managerial efficiency levels in the hotel industry. The only prior efficiency study in this sector employed a linear-programming technique termed data envelopment analysis (DEA). That study found the hotel industry to be operating at a 89% efficiency level. The stochastic frontier approach overcomes many of the potential statistical limitations of DEA and allows for additional insights on efficiency in the hotel market. The average efficiency measures for the hotel industry estimated by the stochastic frontier approach are high and consistent with the results obtained using DEA. In particular, average efficiency was estimated at 89.4%, with the most and least efficient hotels operating at a 92.1% and a 84.3% efficiency level, respectively.
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