Efficiency of Italian opera houses: A stochastic frontier production function approach
From the seminal work of Baumol and Bowen, the empirical literature on the production of performing arts has mainly focused on cost functions. Studies have explored the cost structure of symphony orchestras, theatres and museums, mostly with the aim of finding evidence of scale economies. Until now no work has studied opera houses’ production or cost functions. Only recently there have been attempts in the use of a more suitable methodology and in finding evidence of the efficiency of performing arts’ institutions. The aim of our paper is to investigate production technology and efficiency of opera houses with a stochastic frontier approach. Using a new database for the 14 major Italian opera houses (in the period 2001-2012), we perform an empirical analysis based on the concept of output maximization. The stochastic frontier analysis allows us to consider the inefficiency/efficiency of an opera house, distinguishing the inputs of the production function, such as physical and human capital, from factors influencing the behavior of opera houses. These latter factors represent the opera houses’ heterogeneity and show the influence on technical efficiency scores. The technique allowsus to disentangle distances from the efficient frontier by dividing the error component into twoaspects: the systematic and the noise components. Finally, we rank opera companies on the basis of the estimated technical inefficiency. Results are computed using the program Frontier 4.1, which can manage either balanced or unbalanced panel data .