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Output, Productivity and Externalities - the Case of Banking

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  • R J Colwell
  • E P Davis

Abstract

Concepts in banking output, and the empirical literature on bank productivity - which employs output concepts - are critically surveyed. Related issues concerning externalities from banking activity, which entail a deviation of private from social measures of banking output, are outlined. For output, the national accounts, production and intermediation approaches are compared. As regards productivity, both partial and total factor productivity measures, and the DEA and parametric approaches to the latter are assessed. The externalities from banking are shown to include contributions to economic development, external economies of scale between institutions, and contagious effects of failures. Among the most striking results in the prevalence of technical inefficiency in banking. In addition, externality issues are rarely considered in combination nor assessed empirically. But more generally, it is also suggested that measurement techniques have often outpaced the theory of what is to be measured, notably in fields such as joint production, risk and competition. Alternative approaches to address these issues are suggested.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 3.

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Date of creation: Aug 1992
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Handle: RePEc:boe:boeewp:3

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  1. repec:fth:louvco:9050 is not listed on IDEAS
  2. Parkan, Celik, 1987. "Measuring the efficiency of service operations: An application to bank branches," Engineering Costs and Production Economics, Elsevier, vol. 12(1-4), pages 237-242, July.
  3. Stuart I. Greenbaum, 1967. "Competition and Efficiency in the Banking System--Empirical Research and Its Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 75, pages 461.
  4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  5. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  6. William J Baumol, 1991. "Technological Imperatives, Productivity and Insurance Costs*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 16(2), pages 154-165, April.
  7. Paul M. Romer, 1989. "Human Capital And Growth: Theory and Evidence," NBER Working Papers 3173, National Bureau of Economic Research, Inc.
  8. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-66, September.
  9. Benston, George J & Hanweck, Gerald A & Humphrey, David B, 1982. "Scale Economies in Banking: A Restructuring and Reassessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 435-56, November.
  10. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  11. George J. Benston, 1965. "Branch Banking And Economies Of Scale," Journal of Finance, American Finance Association, vol. 20(2), pages 312-331, 05.
  12. Rangan, Nanda & Grabowski, Richard & Aly, Hassan Y. & Pasurka, Carl, 1988. "The technical efficiency of US banks," Economics Letters, Elsevier, vol. 28(2), pages 169-175.
  13. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring.
  14. Banker, Rajiv D., 1984. "Estimating most productive scale size using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 17(1), pages 35-44, July.
  15. Choi, Sang-Rim & Tschoegl, Adrian E, 1984. "Bank Employment in the World's Largest Banks: An Update: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(3), pages 359-62, August.
  16. Forsund, Finn R. & Lovell, C. A. Knox & Schmidt, Peter, 1980. "A survey of frontier production functions and of their relationship to efficiency measurement," Journal of Econometrics, Elsevier, vol. 13(1), pages 5-25, May.
  17. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
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Cited by:
  1. Robert Webb, 2003. "Levels of efficiency in UK retail banks: a DEA window analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 305-322.

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