Decomposing capacity utilization in data envelopment analysis: An application to banks in India
This paper briefly reviews the existing methods of capacity utilization in nonparametric framework from economic perspectives, and then suggests an alternative in the light of limitations therein. In the spirit of work by Coelli et al. [Coelli, T.J., Grifell-Tatje, E., Perelman, S., 2002. Capacity utilisation and profitability: A decomposition of short run profit efficiency. International Journal of Production Economics 79, 261-278], we propose two methods, radial and non-radial, to decompose the input-based physical (technological) capacity utilization into various meaningful components viz., technical inefficiency, ray economic capacity utilization and optimal capacity idleness. A case study of Indian banking industry is taken as an example to illustrate the potential application of these two methods of decomposition. Our two broad empirical findings are that first, competition created after financial sector reforms generates high efficiency growth, and reduces excess capacity; second, the cost gap of the short-run cost from the actual cost is higher for the nationalized banks over the private banks indicating that the former banks, though old, do not reflect their learning experience in their cost minimizing behavior.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-98, October.
- Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-97, May.
- Gold, Bela, 1973. "Technology, productivity and economic analysis," Omega, Elsevier, vol. 1(1), pages 5-24, February.
- Robert Russell, R., 1985. "Measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 35(1), pages 109-126, February.
- Gold, Bela, 1981. "Changing Perspectives on Size, Scale, and Returns: An Interpretive Survey," Journal of Economic Literature, American Economic Association, vol. 19(1), pages 5-33, March.
- Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
- Allen N. Berger & David B. Humphrey, 1992.
"Measurement and Efficiency Issues in Commercial Banking,"
in: Output Measurement in the Service Sectors, pages 245-300
National Bureau of Economic Research, Inc.
- Allen N. Berger & David B. Humphrey, 1990. "Measurement and efficiency issues in commercial banking," Finance and Economics Discussion Series 151, Board of Governors of the Federal Reserve System (U.S.).
- Morrison, Catherine J, 1985. "Primal and Dual Capacity Utilization: An Application to Productivity Measurement in the U.S. Automobile Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 312-24, October.
- Coelli, Tim & Grifell-Tatje, Emili & Perelman, Sergio, 2002.
"Capacity utilisation and profitability: A decomposition of short-run profit efficiency,"
International Journal of Production Economics,
Elsevier, vol. 79(3), pages 261-278, October.
- COELLI, Tim & GRIFELL-TATJE, Emili & PERELMAN, Sergio, 2001. "Capacity utilisation and profitability: a decomposition of short run profit efficiency," CORE Discussion Papers 2001052, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Fare, Rolf & Grosskopf, Shawna & Kokkelenberg, Edward C, 1989. "Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 655-66, August.
- Nelson, Randy A, 1989. "On the Measurement of Capacity Utilization," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 273-86, March.
- Prior, Diego, 2003. "Long- and short-run non-parametric cost frontier efficiency: An application to Spanish savings banks," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 655-671, April.
- Tone, Kaoru & Sahoo, Biresh K., 2004. "Degree of scale economies and congestion: A unified DEA approach," European Journal of Operational Research, Elsevier, vol. 158(3), pages 755-772, November.
- Bol, Georg, 1986. "On technical efficiency measures: A remark," Journal of Economic Theory, Elsevier, vol. 38(2), pages 380-385, April.
- Tone, Kaoru, 2001. "A slacks-based measure of efficiency in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 130(3), pages 498-509, May.
- Tone, Kaoru & Sahoo, Biresh K., 2005. "Evaluating cost efficiency and returns to scale in the Life Insurance Corporation of India using data envelopment analysis," Socio-Economic Planning Sciences, Elsevier, vol. 39(4), pages 261-285, December.
- McFadden, Daniel, 1978. "Estimation Techniques for the Elasticity of Substitution and Other Production Parameters," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 2, chapter 4 McMaster University Archive for the History of Economic Thought.
- Laurens CHERCHYE & Tom VAN PUYENBROECK, 1999.
"A Shadow Price Approach to Technical Efficiency Measurement,"
Center for Economic Studies - Discussion papers
ces9924, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Laurens Cherchye & Tom Van Puyenbroeck, 1999. "A Shadow Price Approach to Technical Efficiency Measurement," Public Economics Working Paper Series ces9924, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
- Robert Chambers & Thomas Mitchell, 2001. "Homotheticity and Non-Radial Changes," Journal of Productivity Analysis, Springer, vol. 15(1), pages 31-39, January.
- Winston, Gordon C, 1974. "The Theory of Capital Utilization and Idleness," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1301-20, December.
- Tone, Kaoru & Sahoo, Biresh K., 2003. "Scale, indivisibilities and production function in data envelopment analysis," International Journal of Production Economics, Elsevier, vol. 84(2), pages 165-192, May.
- Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
- Eilon, S & Gold, Bela & Soesan, Judith, 1975. "A productivity study in a chemical plant," Omega, Elsevier, vol. 3(3), pages 329-343, June.
- Edward J. Frydl, 1993. "Excess capacity in the financial sector: causes and issues," Research Paper 9310, Federal Reserve Bank of New York.
- Berndt, Ernst R. & Hesse, Dieter M., 1986. "Measuring and assessing capacity utilization in the manufacturing sectors of nine oecd countries," European Economic Review, Elsevier, vol. 30(5), pages 961-989, October.
- R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
- Fare, Rolf & Knox Lovell, C. A., 1978. "Measuring the technical efficiency of production," Journal of Economic Theory, Elsevier, vol. 19(1), pages 150-162, October.
- Eilon, Samuel, 1975. "Changes in profitability components," Omega, Elsevier, vol. 3(3), pages 353-354, June.
- Robert Russell, R., 1990. "Continuity of measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 51(2), pages 255-267, August.
- Segerson, Kathleen & Squires, Dale, 1990. "On the measurement of economic capacity utilization for multi-product industries," Journal of Econometrics, Elsevier, vol. 44(3), pages 347-361, June.
- Stigler, George J, 1976. "The Xistence of X-Efficiency," American Economic Review, American Economic Association, vol. 66(1), pages 213-16, March.
- Kopp, Raymond J., 1981. "Measuring the technical efficiency of production: A comment," Journal of Economic Theory, Elsevier, vol. 25(3), pages 450-452, December.
- Fare, Rolf & Grosskopf, Shawna & Kirkley, Jim, 2000. "Multi-output Capacity Measures and Their Relevance for Productivity," Bulletin of Economic Research, Wiley Blackwell, vol. 52(2), pages 101-12, April.
- Christensen, Flemming & Hougaard, Jens Leth & Keiding, Hans, 1999. "An axiomatic characterization of efficiency indices," Economics Letters, Elsevier, vol. 63(1), pages 33-37, April.
- Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:195:y:2009:i:2:p:575-594. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.