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IMA Journal of Management Mathematics Advance Access originally published online on November 13, 2007
IMA Journal of Management Mathematics 2008 19(1):75-86; doi:10.1093/imaman/dpm030
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© The authors 2007. Published by Oxford University Press on behalf of the Institute of Mathematics and its Applications. All rights reserved.

Estimation and decomposition of cost efficiency in the health care food service sector: an extended stochastic frontier approach

A. Assaf{dagger}

School of Management, University of Western Sydney, Locked Bag 1797, Penrith South DC NSW 1797, Australia

K. M. Matawie{ddagger}

School of Computing and Mathematics, University of Western Sydney, Locked Bag 1797, Penrith South DC NSW 1797, Australia

{dagger} Email: a.assaf{at}uws.edu.au

{ddagger} Corresponding author. Email: k.matawie{at}uws.edu.au

Received on 11 February 2007. Accepted on 14 September 2007.

This paper introduces and implements an extended stochastic frontier model to estimate and decompose cost efficiency (CE) in the health care foodservice sector. The interesting feature of this model is that it allows differentiation between the three different types of efficiency: technical efficiency (TE), allocative efficiency (AE) and their associated CE. A complete illustration of these efficiencies is presented using a cross-sectional sample of 101 hospital foodservice operations. Results showed that the model and all its parameter coefficients were plausible, significant and satisfy all theoretical requirements. It was also clear that the average efficiency scores were lower for TE (80%) than AE (88%), indicating that TE is the main source of CE and requires further attention.

Keywords: stochastic frontier approach; health care foodservice; cost minimization; technical efficiency; allocative efficiency; cost efficiency


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