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Rationalising Inefficiency: A Study of Canadian Bank Branches

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  • Mette Asmild

    ()
    (Nottingham University Business School)

  • Peter Bogetoft

    (Department of Economics, Royal Agricultural University)

  • Jens Leth Hougaard

    (Institute of Economics, University of Copenhagen)

Abstract

Many studies have attempted to explain estimated inefficiency, for instance by bounded rationality, ignorance, lack of incentives or motivation etc. However, the presence of inefficiency remains in conflict with the neo-classical idea of economic rationality. This paper suggests ways in which the outcomes of Data Envelopment Analysis-type efficiency models can be rationalised. To illustrate the concepts we consider a data set of Canadian bank branches. The empirical results are encouraging since what appears to be inefficiency in some branches can be argued to be the outcome of rational decisions regarding resource allocation.

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File URL: http://www.nottingham.ac.uk/%7Elizecon/RePEc/pdf/19.pdf
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Bibliographic Info

Paper provided by Industrial Economics Division in its series Occasional Papers with number 19.

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Date of creation: 11 Jan 2006
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Handle: RePEc:nub:occpap:19

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Keywords: Banking; Data Envelopment Analysis (DEA); Rationalising Inefficiency; Resource utilization; Allocation;

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  1. Haskel, Jonathan & Sanchis, Amparo, 2000. "A bargaining model of Farrell inefficiency," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 539-556, May.
  2. Parish, Ross M & Ng, Yew-Kwang, 1972. "Monopoly, X-Efficiency and the Measurement of Welfare Loss," Economica, London School of Economics and Political Science, vol. 39(155), pages 301-08, August.
  3. Schaffnit, Claire & Rosen, Dan & Paradi, Joseph C., 1997. "Best practice analysis of bank branches: An application of DEA in a large Canadian bank," European Journal of Operational Research, Elsevier, vol. 98(2), pages 269-289, April.
  4. Haskel, Jonathan & Sanchis, Amparo, 1995. "Privatisation and X-Inefficiency: A Bargaining Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 301-21, September.
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