Estimating Cost Efficiency and the Technology Gap Ratio Using the Metafrontier Approach for Taiwanese International Tourist Hotels *

Abstract

Rather than estimating cost efficiency based on an assumption of identical frontiers, this paper uses a metafrontier model, which is developed based on the idea that different groups of hotels apply different technologies. The analysis is applied to the meta-cost efficiencies of sixty-two international tourist hotels in Taiwan from 2002 through 2006. Because the hotels operate under different circumstances, they can be said to use various production technologies. The analysis specifically tests the efficiency effects of three hotel management factors, namely, the type of guests (i.e., international travelers in the Taipei metropolitan hotels or local travelers in non-Taipei metropolitan properties), the size of hotel, and the management framework (i.e., independent, domestic chain, or international chain). The results show that conventional cost efficiency analysis overestimates the hotels’ efficiency. In contrast to previous studies, this analysis finds no significant difference in the average cost efficiencies of the Taipei metropolitan hotels compared to the non-Taipei metropolitan properties. However, the average cost efficiency of small-scale hotels is significantly higher than that of large-scale hotels. The average cost efficiency of domestic chain hotels is clearly higher than that of independent hotels, which is in turn higher than the average cost efficiency of international chain hotels.