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Technical and allocative efficiency in European banking

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  • Brissimis, Sophocles N.
  • Delis, Manthos D.
  • Tsionas, Efthymios G.

Abstract

This paper specifies an empirical framework for estimating both technical and allocative efficiency using the translog cost-share system, thus providing a solution to the issue known in the literature as the Greene problem. The model is applied to a large panel of European banks and the results are compared with those of a model that does not include an allocative inefficiency term and also with those obtained by using a consistent Bayesian technique. Our results suggest that models which include only technical efficiency, significantly overestimate it, while parameter estimates from the model that includes both technical and allocative efficiency are very close to the ones obtained from the Bayesian approach, thus enhancing our confidence in the proposed methodology. Finally, the fact that allocative efficiency of banks in our sample improves more than technical efficiency underlines the importance of including an allocative inefficiency component in parametric efficiency models.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Operational Research.

Volume (Year): 204 (2010)
Issue (Month): 1 (July)
Pages: 153-163

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Handle: RePEc:eee:ejores:v:204:y:2010:i:1:p:153-163

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Web page: http://www.elsevier.com/locate/eor

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Keywords: Technical and allocative efficiency Translog cost function Maximum likelihood European banking;

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References

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  1. Schmidt, Peter & Knox Lovell, C. A., 1979. "Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers," Journal of Econometrics, Elsevier, vol. 9(3), pages 343-366, February.
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Citations

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Cited by:
  1. Delis, Manthos D & Koutsomanoli-Filippaki, Anastasia & Staikouras, Christos & Gerogiannaki, Katerina, 2008. "Evaluating cost and profit efficiency: a comparison of parametric and nonparametric methodologies," MPRA Paper 14039, University Library of Munich, Germany.
  2. George M. von Furstenberg, 2007. "Aspects, Models and Measures for Assessing the Competitiveness of International Financial Services in a Particular Location," Working Papers 182007, Hong Kong Institute for Monetary Research.
  3. Huang, Wei & Eling, Martin, 2013. "An efficiency comparison of the non-life insurance industry in the BRIC countries," European Journal of Operational Research, Elsevier, vol. 226(3), pages 577-591.
  4. Mihăiță-Cosmin M. POPOVICI, 2014. "Impact Of Financial Crisis On Banking Efficiency: Evidence From Romania," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 3, pages 451-456, April.
  5. Subal Kumbhakar & Frank Asche & Ragnar Tveteras, 2013. "Estimation and decomposition of inefficiency when producers maximize return to the outlay: an application to Norwegian fishing trawlers," Journal of Productivity Analysis, Springer, vol. 40(3), pages 307-321, December.
  6. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
  7. George Furstenberg, 2008. "Assessing the Competitiveness of International Financial Services in Particular Locations: A Survey of Methods and Perspectives," Open Economies Review, Springer, vol. 19(4), pages 539-556, September.
  8. Agoraki, Maria-Eleni & Delis, Manthos D & Staikouras, Panagiotis, 2009. "The effect of board size and composition on bank efficiency," MPRA Paper 18548, University Library of Munich, Germany.
  9. Georges Assaf, A. & Gillen, David, 2012. "Measuring the joint impact of governance form and economic regulation on airport efficiency," European Journal of Operational Research, Elsevier, vol. 220(1), pages 187-198.
  10. Kumbhakar, Subal C., 2011. "Estimation of production technology when the objective is to maximize return to the outlay," European Journal of Operational Research, Elsevier, vol. 208(2), pages 170-176, January.

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