Technological Heterogeneity and Hotel Efficiency: A Bayesian Approach

Abstract

Hotel efficiency has traditionally been estimated assuming that all hotels use the same production technology. However, in practice, hotels have different technologies, and ignoring this reality can lead to an overestimation of inefficiency in the sector. This article relaxes this assumption and estimates efficiency in the hotel industry using a stochastic frontier model with random coefficients. This methodology allows us to separate firm-specific inefficiencies from potential technological heterogeneity across hotels. The empirical results indicate that the estimated efficiencies differ between the random coefficients model and the fixed coefficients model. These findings support our thesis of technological heterogeneity across hotels.