This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

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
Author Info
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):

Abstract

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.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://snde.rutgers.edu/Rutgers/wp/2000-05.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200005.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 21 Jun 2000
Date of revision:
Handle: RePEc:rut:rutres:200005

Contact details of provider:
Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248
Phone: (732) 932-7482
Fax: (732) 932-7416
Web page: http://snde.rutgers.edu/Rutgers/wp/rutgers-wplist.html
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: agency problems banking efficiency production risk

Other versions of this item:

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.:

  1. 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)
  2. 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:
  3. 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:
  4. 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!]
  5. 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:
  6. 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)
  7. 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)
  8. 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)
  9. 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)
  10. 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)
  11. 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.
  12. 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:
  13. 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)
  14. 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:
  15. 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:
  16. 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.)

  1. 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:
  2. 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:
  3. 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:
  4. 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!]
  5. Biaggio Bossone & Jong-Kun Lee, 2002. "In Finance, Size Matters," IMF Working Papers 02/113, International Monetary Fund. [Downloadable!]
  6. 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!]
  7. 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:
  8. 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!]
  9. Michael Koetter, 2004. "The Stability of Efficiency Rankings when Risk-Preferences are different," Working Papers 04-08, Utrecht School of Economics. [Downloadable!]
  10. 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!]
  11. 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!]
  12. Loretta J. Mester, 2003. "Applying efficiency measurement techniques to central banks," Working Papers 03-13, Federal Reserve Bank of Philadelphia. [Downloadable!]
  13. 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.
Statistics
Access and download statistics

Did you know? About 900 archives contribute their bibliographic data to RePEc.

This page was last updated on 2008-8-20.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.