A stochastic cost efficiency analysis of international tourist hotels in Taiwan

Jin-Li Hu*, Chia Ning Chiu, Hwai Shuh Shieh, Chia Hui Huang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

90 Scopus citations

Abstract

The one-stage stochastic frontier approach (SFA) is used in this study to simultaneously estimate cost efficiency scores and factors of cost inefficiency for 66 international tourist hotels in Taiwan during 1997-2006. An SFA model with three outputs and three inputs is defined. The three outputs are room revenue, food and beverage revenue, and other operation revenue while the three inputs are price of labor, price of other operation, and price of food and beverage. This model also takes into account five environmental variables, including dummy variable of the hotels located in non-metropolitan area, dummy variable of chain hotels, the number of tourist guides, the minimum distance from each hotel to Taoyuan international airport and the minimum distance from each hotel to Kaohsiung international airport. Empirical results show that international tourist hotels in Taiwan are on average operating at 91.15% cost efficiency. All nominal variables are transformed into real variables in 1997 prices by GDP deflators. Chain systems, tourist guides, and international transportation can significantly improve the cost efficiency of international tourist hotels in Taiwan.

Original languageEnglish
Pages (from-to)99-107
Number of pages9
JournalInternational Journal of Hospitality Management
Volume29
Issue number1
DOIs
StatePublished - 1 Mar 2010

Keywords

  • Cost efficiency
  • International tourist hotel
  • Panel data
  • Stochastic frontier
  • Time-varying efficiency

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