Technical efficiency in the Italian performing arts companies

This paper evaluates the determinants of firms’ technical efficiency in the Italian Performing Arts (PA) sector, by estimating a stochastic production frontier for an unbalanced panel of 107 firms over the period 2005-2012. The panel data setting allows us to control for both unobserved and observed heterogeneity of PA firms, reaching several interesting and robust findings. Firstly, it finds that the Italian PA firms are scale-inefficient as they generally operate in either an increasing or decreasing returns to scale landscape. This result is reinforced by the fact that the smaller firms (10-49 employees) are the most technically efficient firm size class. Secondly, this research proves that the efficiency score is on average 66%, demonstrating that PA firms’ output could be substantially increased without the use of new inputs. Thirdly, it confirms that the quality matters and competences increase the efficiency in the sector. Finally, the environmental factors (especially the quality of institutions) have a strong impact on technical efficiency of PA firms, supporting that regional differences also exist in this sector.