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Enjoying the Quiet Life under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks

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Author Info

  • Michael Koetter

    (University of Groningen)

  • James W. Kolari

    (Texas A&M University)

  • Laura Spierdijk

    (University of Groningen)

Abstract

The quiet life hypothesis posits that firms with market power incur inefficiencies rather than reap monopolistic rents. We propose a simple adjustment to Lerner indices to account for the possibility of forgone rents to test this hypothesis. For a large sample of U.S. commercial banks, we find that adjusted Lerner indices are significantly larger than conventional Lerner indices and trending upward over time. Instrumental variable regressions reject the quiet life hypothesis for cost inefficiencies. However, Lerner indices adjusted for profit inefficiencies reveal a quiet life among U.S. banks. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 2 (May)
Pages: 462-480

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Handle: RePEc:tpr:restat:v:94:y:2012:i:2:p:462-480

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Web page: http://mitpress.mit.edu/journals/

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Related research

Keywords: deregulation; rents; Lerner indices; U.S. banks;

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