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Recovering Risky Technologies Using The Almost Ideal Demand System: An Application To U.S. Banking Author info | Abstract | Publisher info | Download info | Related research | Statistics Joseph P. Hughes () (Rutgers University)
Loretta J. Mester (Federal Reserve Bank of Philadelphia)
William Lang () (Office of the Comptroller of the Currency)
Choon-Geol Moon () (Hanyang University)
Additional information is available for the following
registered author(s):
We argue for a shift in the focus of modeling production from the traditional assumptions of profit maximization and cost minimization to a more general assumption of managerial utility maximization that can incorporate risk incentives into the analysis of production and recover value-maximizing technologies. We show how this shift can be implemented using the Almost Ideal Demand System. In addition, we suggest a more general way of measuring efficiency that can incorporate a concern for the market value of firms' assets and equity and identify value-maximizing firms. This shift in focus bridges the gap between the risk-incentives literature in banking that ignores the microeconomics of production and the production literature that ignores the relationship between production decisions and risk.
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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number
200005.
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Date of creation: 21 Jun 2000Date of revision:
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Keywords: agency problems banking efficiency production risk Other versions of this item:
Paper Joseph P. Hughes & William Lang & Loretta J. Mester & Choon-Geol Moon, 2000.
"Recovering Risky Technologies Using the Almost Ideal Demand System: An Application to U.S. Banking ,"
Center for Financial Institutions Working Papers
97-47, Wharton School Center for Financial Institutions, University of Pennsylvania.
[Downloadable!] Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 2000.
"Recovering risky technologies using the almost ideal demand system: an application to U.S. banking ,"
Working Papers
00-5, Federal Reserve Bank of Philadelphia.
[Downloadable!] Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1997.
"Recovering risky technologies using the almost ideal demand system: an application to U.S. banking ,"
Working Papers
97-8, Federal Reserve Bank of Philadelphia.
[Downloadable!] Find related papers by JEL classification: D20 - Microeconomics - - Production and Organizations - - - General D21 - Microeconomics - - Production and Organizations - - - Firm Behavior G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.:
Hughes, Joseph P, et al, 1996.
"Efficient Banking under Interstate Branching ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 28(4), pages 1045-71, November.
[Downloadable!] (restricted)
Allen N. Berger & Loretta J. Mester, 1997.
"Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions? ,"
Center for Financial Institutions Working Papers
97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
[Downloadable!]
Other versions:
Allen N. Berger & Loretta J. Mester, 1997.
"Inside the black box: what explains differences in the efficiencies of financial institutions? ,"
Finance and Economics Discussion Series
1997-10, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Allen N. Berger & Loretta J. Mester, 1997.
"Inside the black box: what explains differences in the efficiencies of financial institutions? ,"
Working Papers
97-1, Federal Reserve Bank of Philadelphia.
[Downloadable!] Berger, Allen N. & Mester, Loretta J., 1997.
"Inside the black box: What explains differences in the efficiencies of financial institutions? ,"
Journal of Banking & Finance ,
Elsevier, vol. 21(7), pages 895-947, July.
[Downloadable!] (restricted) Joseph P. Hughes & William W. Lang & Loretta J. Mester, 1995.
"Recovering technologies that account for generalized managerial preferences: an application to non-risk neutral banks ,"
Working Papers
95-8/R, Federal Reserve Bank of Philadelphia.
Other versions: Rebecca S. Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1996.
"Banks with something to lose: the disciplinary role of franchise value ,"
Economic Policy Review ,
Federal Reserve Bank of New York, issue Oct, pages 1-14.
[Downloadable!]
Joseph P. Hughes & Loretta J. Mester & Moon Choo-Geol, 2000.
"Are scale economies in banking elusive or illusive? evidence obtained by incorporating capital structure and risk-taking into models of bank production ,"
Proceedings ,
Federal Reserve Bank of Chicago, issue May, pages 233-264.
Other versions:
Joseph P. Hughes & Loretta J. Mester & Choon-Geol Moon, 2000.
"Are scale economies in banking elusive or illusive? Evidence obtained by incorporating capital structure and risk-taking into models of bank production ,"
Working Papers
00-4, Federal Reserve Bank of Philadelphia.
[Downloadable!] Hughes, Joseph P. & Mester, Loretta J. & Moon, Choon-Geol, 2001.
"Are scale economies in banking elusive or illusive?: Evidence obtained by incorporating capital structure and risk-taking into models of bank production ,"
Journal of Banking & Finance ,
Elsevier, vol. 25(12), pages 2169-2208, December.
[Downloadable!] (restricted) Joseph Hughes, 1999.
"Incorporating risk into the analysis of production ,"
Atlantic Economic Journal ,
International Atlantic Economic Society, vol. 27(1), pages 1-23, March.
[Downloadable!] (restricted)
Keeley, Michael C, 1990.
"Deposit Insurance, Risk, and Market Power in Banking ,"
American Economic Review ,
American Economic Association, vol. 80(5), pages 1183-1200, December.
[Downloadable!] (restricted)
Calomiris, Charles W & Kahn, Charles M, 1991.
"The Role of Demandable Debt in Structuring Optimal Banking Arrangements ,"
American Economic Review ,
American Economic Association, vol. 81(3), pages 497-513, June.
[Downloadable!] (restricted)
Gorton, Gary & Rosen, Richard, 1995.
" Corporate Control, Portfolio Choice, and the Decline of Banking ,"
Journal of Finance ,
American Finance Association, vol. 50(5), pages 1377-1420, December.
[Downloadable!] (restricted)
Saunders, Anthony & Strock, Elizabeth & Travlos, Nickolaos G, 1990.
" Ownership Structure, Deregulation, and Bank Risk Taking ,"
Journal of Finance ,
American Finance Association, vol. 45(2), pages 643-54, June.
[Downloadable!] (restricted)
Humphrey, David B & Pulley, Lawrence B, 1997.
"Banks' Responses to Deregulation: Profits, Technology, and Efficiency ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 29(1), pages 73-93, February.
Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1996.
"Efficient banking under interstate branching ,"
Working Papers
96-9, Federal Reserve Bank of Philadelphia.
[Downloadable!]
Other versions: Deaton, Angus S & Muellbauer, John, 1980.
"An Almost Ideal Demand System ,"
American Economic Review ,
American Economic Association, vol. 70(3), pages 312-26, June.
[Downloadable!] (restricted)
Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol, 1999.
"The dollars and sense of bank consolidation ,"
Journal of Banking & Finance ,
Elsevier, vol. 23(2-4), pages 291-324, February.
[Downloadable!] (restricted)
Other versions: Joseph P. Hughes & Loretta J. Mester, .
"A Quality and Risk-Adjusted Cost Function for Banks: Evidence on the "Too-Big-To-Fail" Doctrine ,"
Rodney L. White Center for Financial Research Working Papers
25-92, Wharton School Rodney L. White Center for Financial Research.
Other versions: Tufano, Peter, 1996.
" Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry ,"
Journal of Finance ,
American Finance Association, vol. 51(4), pages 1097-1137, September.
[Downloadable!] (restricted)
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Allen N. Berger & Loretta J. Mester, 1999.
"What explains the dramatic changes in cost and profit performance of the U.S. banking industry? ,"
Finance and Economics Discussion Series
1999-13, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!]
Other versions: Allen N. Berger & Loretta J. Mester, 2001.
"Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition ,"
Center for Financial Institutions Working Papers
01-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
[Downloadable!]
Other versions:
Allen N. Berger & Loretta J. Mester, 2002.
"Explaining the dramatic changes in performance of U.S. banks: technological change, deregulation, and dynamic changes in competition ,"
Working Papers
01-6, Federal Reserve Bank of Philadelphia.
[Downloadable!] Berger, Allen N. & Mester, Loretta J., 2003.
"Explaining the dramatic changes in performance of US banks: technological change, deregulation, and dynamic changes in competition ,"
Journal of Financial Intermediation ,
Elsevier, vol. 12(1), pages 57-95, January.
[Downloadable!] (restricted) Jacob Bikker & Jaap Bos, 2004.
"Trends in Competition and Profitability in the Banking Industry: A Basic Framework ,"
DNB Working Papers
018, Netherlands Central Bank, Research Department.
[Downloadable!]
Other versions: Robert DeYoung, 2001.
"Learning-by-doing, scale efficiencies, and financial performance at Internet-only banks ,"
Working Paper Series
WP-01-06, Federal Reserve Bank of Chicago.
[Downloadable!]
Biaggio Bossone & Jong-Kun Lee, 2002.
"In Finance, Size Matters ,"
IMF Working Papers
02/113, International Monetary Fund.
[Downloadable!]
Joseph P. Hughes & Choon-Geol Moon, 2004.
"Estimating managers' utility-maximizing demand for agency goods ,"
Proceedings ,
Federal Reserve Bank of Chicago, issue May, pages 320-352.
[Downloadable!]
Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon & Michael S. Pagano, 2002.
"Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation and Financial Performance ,"
Center for Financial Institutions Working Papers
02-18, Wharton School Center for Financial Institutions, University of Pennsylvania.
[Downloadable!]
Other versions:
Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon & Michael S. Pagano, 2002.
"Do bankers sacrifice value to build empires? managerial incentives, industry consolidation, and financial performance ,"
Working Papers
02-2, Federal Reserve Bank of Philadelphia.
[Downloadable!] William Lang & Choon-Geol Moon & Loretta Mester & Joseph Hughes & Michael Pagano, 2001.
"Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation, and Financial Performance ,"
Departmental Working Papers
200117, Rutgers University, Department of Economics.
[Downloadable!] Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol & Pagano, Michael S., 2003.
"Do bankers sacrifice value to build empires? Managerial incentives, industry consolidation, and financial performance ,"
Journal of Banking & Finance ,
Elsevier, vol. 27(3), pages 417-447, March.
[Downloadable!] (restricted) Koetter, Michael & Poghosyan, Tigran, 2008.
"The implications of latent technology regimes for competition and efficiency in banking ,"
Discussion Paper Series 2: Banking and Financial Studies
2008,15, Deutsche Bundesbank, Research Centre.
[Downloadable!]
Michael Koetter, 2004.
"The Stability of Efficiency Rankings when Risk-Preferences are different ,"
Working Papers
04-08, Utrecht School of Economics.
[Downloadable!]
Koetter, Michael, 2006.
"The stability of efficiency rankings when risk-preferences and objectives are different ,"
Discussion Paper Series 2: Banking and Financial Studies
2006,08, Deutsche Bundesbank, Research Centre.
[Downloadable!]
Allen N. Berger & Astrid A. Dick, 2004.
"Entry into banking markets and the first-mover advantage ,"
Proceedings ,
Federal Reserve Bank of Chicago, issue May, pages 243-254.
[Downloadable!]
Loretta J. Mester, 2003.
"Applying efficiency measurement techniques to central banks ,"
Working Papers
03-13, Federal Reserve Bank of Philadelphia.
[Downloadable!]
Robert DeYoung, 2001.
"Learning-by-doing, scale efficiencies, and financial performance at Internet-only banks ,"
Proceedings ,
Federal Reserve Bank of Chicago, issue May, pages 315-327.
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